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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Topics today include:
How to Make a Boring 5,000% Return
Early Monetary History of the U.S.
Capitulation for Oil?
Obama Wants to Tax Crude Production
Trends Shifting to Oil's Disadvantage
What the Young Should Know about Social Security
The World's Most Miserable Economies
Saudi Arabia Would Send Troops to Syria
How Negative can Interest rates Go?
Trickle Down in Australia
Articles about events, conflicts and disease around the world
These Are the World's Most Miserable Economies (Bloomberg) Misery index of inflation, unemployment shows 2015 economies about as depressed as expected, while economists see more of same this year. The most miserable of the miserable are led by Venezuela.
Negative creep (The Economist) Haruhiko Kuroda, the governor of Japan’s central bank, this week claimed there is no limit to measures to ease monetary policy. The Economist says that on interest rates, at least, that is wrong. The limit may no longer be zero but it does still exist. (Econintersect: There is a severe negative criticism embedded here - but not stated - for the global monetary system where money is created only as debt.) The Economist describes the current debacle as follows:
Not so long ago it was widely thought that, if interest rates went below zero, banks and their depositors would simply switch to cash, which pays no interest but doesn’t charge any either. Yet deposits in Europe, where rates have been negative for well over a year, have been stable. For commercial banks, a small interest charge on electronic deposits has proved to be bearable compared with the costs of safely storing stacks of cash—and not yet onerous enough to try to pass on to individual depositors.
That has resulted in an unavoidable squeeze on profits of banks, particularly in the euro area, where an interest rate of -0.3% applies to almost all commercial-bank reserves. (As in Switzerland and Denmark, Japan’s central bank has shielded banks from the full effect by setting up a system of tiered interest rates, in which the negative rate applies only to new reserves.) If interest rates go deeper into negative territory, profit margins will be squeezed harder—even in places where central banks have tried to protect banks. And if banks are not profitable, they are less able to add to the capital buffers that let them operate safely.
That would put pressure on banks to charge their own customers for deposits. Such pressure is already starting to tell. Banks in Europe have started to pass on some of the cost of negative rates to big corporate depositors. Their only ready alternative to stashing large pots of cash is safe and liquid government bonds, whose yields have also turned negative, for terms of up to ten years in Switzerland. Rich personal-account holders are next. The boss of Julius Baer, a Swiss private bank, said this week that if interest rates in Europe go further into the red, it might have to charge depositors.
A Renewables Revolution Is Toppling the Dominance of Fossil Fuels in U.S. Power (Bloomberg) Renewable energy was the biggest source of new power added to U.S. electricity grids last year as falling prices and government incentives made wind and solar increasingly viable alternatives to fossil fuels. Econintersect: We keep coming back to this news because many are unaware that the world is changing and nowhere faster than in the U.S.
Drug exec takes the Fifth on Capitol Hill, angers lawmakers (Associated Press) Infuriating members of Congress, a smirking Martin Shkreli took the Fifth at a Capitol Hill hearing Thursday when asked about his jacking up of drug prices, then promptly went on Twitter and insulted his questioners as "imbeciles". The brash, 32-year-old entrepreneur who has been vilified as the new face of pharmaceutical industry greed was summoned by the House Oversight and Government Reform Committee, which is investigating soaring prices for critical medicines.
Former Republican Secretary of State Powell got classified data on personal email account: House Democrat (Reuters) Former Secretary of State Colin Powell and aides to his successor Condoleezza Rice both received classified emails on personal email accounts, the top Democrat on a key congressional oversight panel said on Thursday. House Oversight Committee ranking Democrat Elijah Cummings said the disclosures about the emails were made by the State Department's Inspector General, who is reviewing email practices of five previous secretaries of state.
Obama to propose $10 per barrel fee on oil (CNBC) President Barack Obama will propose a $10 per barrel charge on oil to fund clean transportation projects as part of his final budget request next week, the White House said Thursday. The proposal would have difficulty clearing the Republican-controlled Congress. Oil companies would pay the fee, which would be gradually introduced over five years. The government would use the proceeds to fund high-speed railways, autonomous cars and other travel systems.
Early signs of capitulation for oil (CNBC) Squeezed by falling oil prices, Russia is talking about privatizing its major companies to close its budget shortfall. Nigeria is seeking a World Bank loan to cover its $11 billion budget gap. Even Saudi Arabia has been drawing down reserves and discussing selling a stake in its national oil company Saudi Aramco. There's no doubt the oil producing nations and energy companies are feeling the pain of a 75% drop in oil prices in the past 1½ years. Now their actions are being viewed as the early signs capitulation is coming.
Zika virus pregnancy case confirmed in Spain - first in Europe (BBC News) Spain has confirmed that a pregnant woman has been diagnosed with the Zika virus - the first such case in Europe. The health ministry said the woman had recently returned from Colombia, where it is believed she was infected. Zika, which is spreading through the Americas, has been linked to babies being born with underdeveloped brains. The World Health Organization (WHO) has declared the microcephaly condition, linked to the mosquito-borne virus, a global public health emergency.
The Latest: Army says Saudi ready to send troops to Syria (Associated Press) A Saudi military spokesman says the kingdom is ready to send ground troops to Syria to fight Islamic State group provided coalition leaders agree during an upcoming meeting in Brussels. Brig. Gen. Ahmed Asiri told The Associated Press on Thursday that Saudi Arabia has taken part in coalition airstrikes against IS since the U.S.-led campaign began in September 2014, but could now provide ground troops.
Billions pledged for Syrians as raids worsen humanitarian crisis (Al Jazeera) As donor nations pledged on Thursday to give billions of dollars in aid to Syria to tackle the world's worst humanitarian crisis, Turkey reported a new exodus of tens of thousands of Syrians fleeing airstrikes amid a reported uptick in raids.
11-year-old Afghan boy, hailed as hero for fighting Taliban, killed by militants (CNN) An 11-year-old Afghan boy who had been praised for his bravery in leading security forces in battle against the Taliban was killed by the militants this week, Afghan authorities said. Wasil Ahmad had commanded a police unit for 43 days as it fought to repel a deadly 71-day Taliban siege last year, according to his uncle Mullah Samad, an Afghan Local Police commander in the Khas Uruzgan district of Uruzgan province. Gunmen on motorbikes shot the boy in the head Monday at a market in Tarin Kowt, the provincial capital of Uruzgan province.
Income inequality: trickle-down economics is alive and well in Australia (The Guardian) Sydney, a beautiful city, is regarded as one of the most liveable in the world. But that amenity is increasingly becoming unattainable for many Sydneysiders. As inequality increases, the opportunities and natural beauty become available to a dwindling minority: according to an Australian Bureau of Statistics report Sydney has become Australia’s least egalitarian city, where 11.4% of all income goes to just 1% of residents. And now the government is embarking on tax reform that could make it worse everywhere. The head of the IMF says reducing inequality spurs growth. Scott Morrison, Treasurer of Australia, says cutting taxes for the rich spurs growth. Somebody’s got it wrong.
Other Economics and Business Items of Note and Miscellanea
If You Had Invested Right After AT&T's IPO (T) (Investopedia) (NYSE: T) started in 1983 when U.S. regulators forced the breakup of the Bell System monopoly. The company spun most of its subsidiaries off into regional carriers, such as South Central Bell, Southwestern Bell and so forth. AT&T's core business became long-distance service, with Sprint and MCI as its main competitors. The company had its initial public offering (IPO) on July 19, 1984. The share price was $1.25. If you had purchased 100 AT&T shares for $1,250 on day one, your investment, not counting dividend payouts, would be worth $42,500 as of January 2016. Econintersect: And what would the dividends have been? It is a complex analysis but we estimate that over the 31 years reinvested dividends would have resulted in at least 600 additional shares (very likely more) so the original $1,250 would today be worth more than $60,000 (likely considerably more).
As Oil Prices Gyrate, Underlying Trends Are Shifting To Oil's Disadvantage (Rocky Mountain Institute) Renewables are beating fossil fuels for economic reasons when i comes to generating electricity. (Econintersect: The only thing hindering a complete phase-over is storage technology since both solar and wind are not "on-demand" production sources. That technology is certain to develop since there is big money to be made by doing so.) Here is an excerpt from this article:
Those who claimed low oil prices would crash renewables (other than biofuels) were wrong. The reason is simple. Wind and solar power make electricity. Oil makes less than four percent of world and under one percent of U.S. electricity, so oil has almost nothing to do with electricity. Thus in 2015, as oil prices kept skidding, global additions of renewable power set a new record, adding about 121 GW of wind and solar power alone. Renewables’ $329 billion investment was up 4% from 2014, says Bloomberg New Energy Finance (which tracks each transaction), but it added 30 percent more capacity because renewables got much cheaper. Solar power is booming even in the Persian Gulf, where it beats $20 oil.
Natural gas does compete with solar and windpower, and its price tends to move with oil’s, but cheaper gas doesn’t much affect renewable power either. That’s because new wind and solar power often beat even the operating costs of the most efficient gas-fired power plants anyway, even without counting the market value of gas’s price volatility.
Yet as oil prices gyrate, it’s important to understand that underlying trends are shifting too, to oil’s disadvantage. It’s happened before. In the 1850s, whalers—America’s fifth-largest industry—were astounded to run out of customers before they ran out of whales. Over five-sixths of their dominant market (lighting) vanished to competitors—oil and gas both synthesized from coal—in the nine years before Drake struck “rock oil” (petroleum) in Pennsylvania in 1859. Two decades later, Edison’s electric lamp beat whale oil, coal oil, town gas, and John D. Rockefeller’s lighting kerosene. Today in turn, most traditional lighting is being displaced by white LEDs, which each decade get 30x more efficient, 20x brighter, and 10x cheaper. By 2020 they should own about two-thirds of the world’s general lighting market.
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