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
Brent up slightly, U.S. down 2 percent; pipeline news limits losses (Reuters) Brent settled up while U.S. crude finished down 2% but off its lows after a partial pipeline outage and bets of positive U.S. inventory data helped oil offset some of Tuesday's skittish sentiment caused by weak Wall Street stocks. Brent futures fell more than 2% earlier on Tuesday before the rebound and U.S. crude tumbled over 3% as U.S. equity markets slumped to a two-week low. Gasoline futures also lost more than 3% before turning positive.
Pope Francis Arrives for First Visit to U.S. (The New York Times) Pope Francis landed to a red-carpet welcome on Tuesday afternoon as he opened his first visit to the United States determined to press the world’s last superpower to do more to care for the planet and its most marginalized inhabitants. The papal jet landed at Andrews Air Force Base where the pontiff was greeted by President Obama, Vice President Joseph R. Biden Jr. and their families.
VW CEO: 'I am endlessly sorry' brand is tarnished (Associated Press) Volkswagen AG's smog-test troubles escalated Tuesday as the company acknowledged putting stealth software in millions of vehicles worldwide. The scandal has now cost VW more than €24 billion ($26 billion) in market value. Volkwagen stunningly admitted that some 11 million of the German carmaker's diesel vehicles contain software that evades emissions controls, far more than the 482,000 identified by the U.S. Environmental Protection Agency as violating the Clean Air Act. Volkswagen also warned that future profits could be affected, and set aside an initial €6.5 billion ($7.3 billion) to cover the fallout.
Unless a new government gets to work quickly, Greece risks being unable to get more money from Europe. That would leave it unable to pay 3.2 billion euros ($3.8 billion) it owes to the International Monetary Fund later this year.
"Greece is not sustainable and the big issues are how far the program will go off track and how many eurozone members will join Germany in viewing missed targets as no longer a price worth paying," said Gabriel Sterne, the head of global macro research at Oxford Economics.
The S&P 500 bought $134 billion worth of itself in Q2 (Sam Ro, Business Insider) One of the big drivers of earnings per share growth has been stock buybacks. The math is relatively straightforward: companies use cash to buy their own stock, allowing net earnings to be divvied up among a smaller number of shares. Econintersect: Of course this is subtracting from what the companies could have used to develop future business - it's a 'going out of business' strategy.
Other Economics and Business Items of Note and Miscellanea
A crisis of confidence (The Economist) The argument here is that the monetary easing era is running out of runway:
Markets have been relatively immune to weak growth in past years because of the backstop provided by the monetary authorities; bad economic news was treated as good news because it would lead to lower rates or more quantitative easing. But what we have seen this summer is a sense that the authorities are not in control of events. The Chinese devaluation was not a huge move but the confusion surrounding it (and the slump in Chinese equities) created an impression of dithering. The Federal Reserve has not helped confidence either. It was not so much that the Fed failed to push up rates (probably the right decision) but that its rationale for holding back was global economic conditions. This new factor seemed to make a mockery of the discussions that had gone before.
Several problems seem to be coming together at once. The first is that QE has come to an end in both the US and the UK and the authorities are thinking of tightening rates. If that happens, it marks a break from the post-2009 period in which all monetary authorities were tightening together. Of course, the ECB and Bank of Japan will still have their feet on the monetary accelerator. But China has been selling reserves to protect its currency; a form of monetary tightening.
Why behavioural economics is useful (Live Mint) Just bringing insights about human behaviour into government, even if they’re not new insights from the perspective of private industry, is progress. Understanding how people think and react can make a huge difference in economic, political and social results. Here is an example from the article:
In Germany, about 12% of people consent to be organ donors; in Austria it’s 99.9%. This huge gap is the product not of “different cultures, different norms, or extraordinarily effective educational campaigns in Austria”, legal scholar Cass Sunstein wrote in a recent paper, but of a simple legal nudge. “In Austria, consent is presumed, subject to opt out. In Germany, consent is not presumed, and people have to opt in.”
Ecosystem Economics (The Huffington Post) Interesting discussion of how rural peoples in undeveloped parts of the world are among those who are the most aware of the economic benfits of preservng their ecosystems.
How an Immigration Downturn Has Contributed to the Construction-Worker Shortage (The Wall Street Journal) Many construction workers who went back to Mexico during the downturn haven’t returned to work in the U.S. due to tighter immigration controls - both for those entering legally and those not - and comparable job opportunities in some Mexican states with improving economies. That doesn’t bode well for a home-building industry that increasingly has cited labor shortages among the factors deterring greater production of late. Granted, U.S. construction starts on single-family homes so far this year amount to an 11% increase from the same period a year ago. Even so, the pace of construction starts in August still amounted to only about half of the average annual output in the most recent normal market of 2001 to 2003. Econintersect: So if labor from Mexico is 24% lower than the construction peak while new home construction is down 50%, the implication is that the non-Mexiacan labor force must have shrunk enough to make up the difference.
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