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A savings glut takes place when investors decline to put their money toward productive activity such as new business ventures, perhaps because they don’t expect a likely return from such investments. Instead they invest in low-risk, high-yield products such as U.S. treasury bonds.
Many experts believe the U.S. economy is currently stuck in the following cycle: Speculators, wary of potential investments in the United States, become very enthusiastic about the expected returns from opportunities abroad. As a result, they help to inflate speculative bubbles in foreign markets; then, once those bubbles no longer appear sustainable, they retreat back to U.S. Treasury debt.
A Moveable Glut (Paul Krugman, The New York Times) The conclusion of this column:
What’s causing this global glut? Probably a mix of factors. Population growth is slowing worldwide, and for all the hype about the latest technology, it doesn’t seem to be creating either surging productivity or a lot of demand for business investment. The ideology of austerity, which has led to unprecedented weakness in government spending, has added to the problem. And low inflation around the world, which means low interest rates even when economies are booming, has reduced the room to cut rates when economies slump.
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Whatever the precise mix of causes, what’s important now is that policy makers take seriously the possibility, I’d say probability, that excess savings and persistent global weakness is the new normal.
My sense is that there’s a deep-seated unwillingness, even among sophisticated officials, to accept this reality. Partly this is about special interests: Wall Street doesn’t want to hear that an unstable world requires strong financial regulation, and politicians who want to kill the welfare state don’t want to hear that government spending and debt aren’t problems in the current environment.
But there’s also, I believe, a sort of emotional prejudice against the very notion of global glut. Politicians and technocrats alike want to view themselves as serious people making hard choices — choices like cutting popular programs and raising interest rates. They don’t like being told that we’re in a world where seemingly tough-minded policies will actually make things worse. But we are, and they will.
Super PACs emerge as unregulated shadow campaigns in 2016 election (Al Jazeera) Powered by unlimited contributions from wealthy donors, super PACs rival campaigns in stature and influence. With the presidential election still more than a year away, it is estimated that a record $10 billion will be raised and spent by the time the next president is elected. That is more than twice as much as the last three White House races combined. And for the first time, the bulk of that money will be raised not by campaigns but by candidate-aligned super PACs, the nominally independent and largely unregulated fundraising juggernauts backed by unlimited contributions from a small pool of wealthy donors.
Goldman Looked Back at How the Fed Usually Reacts to Declines in the Stock Market (Bloomberg) Goldman Sachs, which expects the first rate hike to come in December, took a look at how a 10 percent decline in equity prices has impacted the Fed in the past. According to Goldman's Alec Phillips, this type of decline typically results in a lower fed funds rate -- by 15 basis points -- at the following meeting. Econintersect: That would be a negative discount rate at the current time.
Migrant crisis: Scores of bodies found on Libya boat (BBC News) About 50 people have been found dead in the hold of a boat carrying migrants intercepted off the coast of Libya, the Italian coastguard says. About 430 people had been rescued alive from the boat, a spokeswoman told Reuters news agency.
Venezuela Is Adding More Zeroes to Its Currency to Deal With Hyperinflation (Bloomberg) Venezuela is preparing to issue bank notes in higher denominations next year as rampant inflation reduces the value of a 100-bolivar bill to just 14 cents on the black market. The new notes -- of 500 and possibly 1,000 bolivars -- are expected to be released sometime after congressional elections are held on Dec. 6, said a senior government official who isn’t authorized to talk about the plans publicly. Econintersect: The oil bust is not helping. Venezuela has the largest oil reserves in the world and right now their value is deeply discounted..
The Beijing Put (Walter Kurtz, The Daily Shot) Two sets of charts here showing how finance is being "managed" and not managed in China. The first three show the monetary easing undertaken thus far by the PBoC (Peoples' Bank of China). The last two show how hot money flows out of China have been building and the turmoil in the stock market which may not be entirely unconnected to hot money movement. Note: The x-axis time scales are different for the last two graphics.
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