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What We Read Today 19 September 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

U.S.

EU

  • Austria faces fresh migrant influx (BBC News)  Austria saw the arrival of tens of thousands of migrants on Saturday, amid bitter rows among EU nations on how to handle the growing crisis.  The migrants were initially sent into Hungary by Croatia, which said it was unable to cope with the 20,000 who had arrived since Wednesday.  Hungary in turn shipped them on to Austria, accusing Croatia of breaking rules by failing to register migrants.  However, some told the BBC that Hungary had not registered them either.

Russia

  • Putin gives go-ahead to Belarus airbase plan (Reuters)  Russian President Vladimir Putin has backed the establishment of an airbase in neighboring Belarus, the latest move by Moscow to project its military power abroad.  Saturday's announcement, which comes at a time of tension with the West over Russian involvement in Ukraine and Syria, may also signal the Kremlin's interest in keeping unpredictable Belarus within its geopolitical orbit.

Cuba

  • Cuba's Isolated Act of Faith (Al Jazeera)  As Pope Francis visits, remote Cuban town emerges as a symbol of a resurgent Catholic Church with the first new church in the country in 70 years.

The Richest Americans Are Winning the Economic Recovery (Bloomberg)

income.growth.2006.2014

Other Economics and Business Items of Note and Miscellanea

  • How Do Banks Become Insolvent (Positive Money)  Great, easy to understand description of modern banking in the current financial system.  Here is the introduction:

If banks can create money, then how do they become insolvent? After all surely they can just create more money to cover their losses? In what follows it will help to have an understanding of how banks make loans and the differences between the type of money created by the central bank, and money created by commercial (or ‘high-street’) banks.

Insolvency can be defined as the inability to pay ones debts. This usually happens for one of two reasons. Firstly, for some reason the bank may end up owing more than it owns or is owed. In accounting terminology, this means its assets are worth less than its liabilities.

Secondly, a bank may become insolvent if it cannot pay its debts as they fall due, even though its assets may be worth more than its liabilities. This is known as cash flow insolvency, or a ‘lack of liquidity’.

This is perhaps the most important takeaway: that yesterday’s decision is more about psychology rather than economics; that the magnitude of the decision is a function of change in public perception.

At the end of the day, a 25-basis-point rate hike is not going to have significant implications. What matters, is the path that follows. As Janet Yellen indicated in her June remarks, “The timing of a first decision to raise rates is something that should not be overblown, whether it’s September or December or March—what matters is the entire path of rates. And, as I’ve said, the Committee anticipates economic conditions that would call for a gradual evolution of the Fed Funds rate toward normalization.”


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