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What We Read Today 05 February 2016

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".).


Every day most of this column ("What We Read Today") is available only to GEI members.

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Topics today include:

  • Global Death Spiral

  • India's Non-credible GDP

  • What Would Minsky Do Now?

  • Rethinking Economics

  • Economic Models vs. Reality

  • No Such Thing as a Free Lunch

  • Zombie Banks

  • Chinese Money in the U.S.

  • Oil Prices Fall, Production Remains High

  • Syrians Mass at Closed Border with Turkey

  • Refugee Flow up 10-fold in 2016

Articles about events, conflicts and disease around the world


  • Gundlach Says 'Frightening' Seeing Financial Stocks Below Crisis (Bloomberg)  DoubleLine Capital’s Jeffrey Gundlach said it’s “frightening” to see major financial stocks trading at prices below their financial crisis levels.  The money manager cited Deutsche Bank AG and Credit Suisse Group AGas examples in a talk outlining bearish views at an investor conference in Beverly Hills, California, on Friday. The manager of the $54.7 billion DoubleLine Total Return Bond Fund said the dollar is headed lower in 2016 and that he’s buying foreign currencies for the first time in five years.  Econintersect:  Remember when they were called "zombie banks"?  Now you know why. 

  • How Much Oil Output Halted Due to Low Prices? Just 0.1% (Bloomberg)  After a year of low oil prices, only 0.1% of global production has been curtailed because it’s unprofitable, according to a report from consultants Wood Mackenzie Ltd. that highlights the industry’s resilience.  Video below shows data from U.S. oil fields.

  • Citi: World economy seems trapped in 'death spiral' (CNBC)  Repeated from Early Bird.  The global economy seems trapped in a "death spiral" that could lead to further weakness in oil prices, recession and a serious equity bear market, Citi strategists have warned.  Some analysts — including those at Citi — have turned bearish on the world economy this year, following an equity rout in January and weaker economic data out of China and the U.S.


  • Producers keep pumping, even with oil prices falling (CNBC)  When a commodity costs more to produce than the current market price, producers usually stop producing it.  When it comes to U.S. crude oil, that's not happening, according to an analysis of global oil production by Wood Mackenzie, a commodities market research firm.  The oil glut continues to weigh on crude prices, but the decision to stop pumping when prices fall is not as simple as it may seem.  See video below graphs.



  • Refugees pouring into Greece and Italy surpass last year's numbers (Al Jazeera)   More than 74,000 people have arrived on the shores of Greece and Italy so far this year — a sign that the European refugee crisis shows no signs of abating in the new year, the International Organization for Migration (IOM) said Friday.  The flow in 2016 is about 10x that of the same period in 2015.  Meanwhile, just this week thousands of other refugees have fled rapidly worsening violence in the Syrian city of Aleppo and tried crossing into Turkey.  (See article under Turkey, below.).  In the first four days of February, about 7,500 people — most fleeing conflicts in Syria, Iraq and Afghanistan — arrived in Greece and Italy, the IOM reported. That is more than in the entire month of February in 2015, the organization said.  So far this year, 74,676 people have arrived on the shores of Greece or Italy, compared to 11,834 in all of January and February last year.The vast majority of them went to the Greek islands.


  • Syria war: Thousands fleeing fighting mass at Turkey border (BBC News)  At least 15,000 Syrian refugees fleeing fighting in northern Aleppo province have gathered at a border crossing with Turkey, UN and Turkish officials said.  The frontier is shut but Turkey has said it is prepared to feed and shelter the refugees.  In the past few days, the Syrian army backed by Russian air power has made a series of gains in Aleppo province.  The advance threatens to surround the city of Aleppo, Syria's largest, landing a major blow to the rebels.



  • Obscure Chinese Firm Dives Into $22 Trillion U.S. Market (Bloomberg)  While the world has gotten used to seeing Chinese companies snap up overseas businesses, the purchase of a 134-year-old U.S. stock market (the Chicago Stock Exchange) by Chongqing Casin Enterprise Group -- a little-known property and investment firm from southwestern China -- raises a whole host of questions. For starters, why does a provincial Chinese business with no apparent ties to the securities industry have any interest in buying one of America’s smallest equity exchanges? And will U.S. regulators sign off?


Other Economics and Business Items of Note and Miscellanea

In the two decades since his death, Hyman Minsky’s stature has grown enormously. He foresaw the great financial crisis of 2007-2009, and economists routinely refer to “Minsky moments” as the tipping point when seemingly stable financial markets collapse with catastrophic consequences. It’s instructive to speculate on how Minsky would view our post-crisis economic recovery, and a new book allows us to do just that.

Although Minsky emerged from the liberal political tradition, he was deeply respected by capitalists and right-leaning economists. Minsky, who lived from 1919 until 1996, promulgated the “financial instability hypothesis” that shows how, paradoxically, the root cause of instability is stability. He synthesized ideas from many walks of economic life: the Chicago School’s love of data and methodology; a careful study of money, banking and the financial system; and the development of policies for alleviating poverty.[1]Almost every topic on which he wrote is relevant to today’s challenges.

In Why Minsky Matters, his student and acolyte, L. Randall Wray — a professor of economics at the University of Missouri–Kansas City and senior scholar at the Levy Economics Institute of Bard College, where Minsky did much of his work — provides readers with an indispensable guide to Minsky’s thought.[2] Commendably, Why Minsky Matters is written for the educated amateur. It is not a technical economics book. Wray’s language is crisp and lucid. Almost everyone with a strong interest in investing, the financial system or economic policy will both benefit from reading it and enjoy the experience.

  • Why Alphabet Buying Verizon Makes Sense (Investopedia)  With some $73 billion in cash (not including possible offshore holdings) on its balance sheet and another $26 billion in operating cash flow, there's not much Alphabet Inc. (GOOGL), the parent of search giant Google, can't afford.  With its recent title as the world's most valuable company, Alphabet – which is no stranger to acquisitions – is eager to maintain that status, given the projected rise in 2016 capital expenses to fund things like Google Fiber, its data center infrastructure, and various other bets. Or Alphabet can just pick up wireless telecom giant Verizon Communications, Inc. (VZ) and maximize what it expects to achieve from these projects. And the synergies with Verizon will be instant.

  • Are economics degrees fit for purpose? (BBC News)  Starting with a group of students at the University of Manchester in 2010, economic students around the world are rebeling against the standard economics curricula which are based on illustrative models rather than examination of real world events and actual history.  The post-crash students in Manchester published a well thought out report on what was wrong with the teaching they were getting.  Now student groups around the world are rallying to the idea of "Rethinking Economics".  And there are some notable economists providing active support of the effort.  And one or two universities - keen to make a name for themselves - are making what seem to be bigger changes to their teaching. University College London has introduced a new curriculum. Leeds, Greenwich and Kingston Universities have done some large-scale rethinking of their economics teaching.  Econintersect:  In the U.S. there are some changes underway as well.  We are aware of reforms that have taken place at the University of Texas Austin, University of Missouri Kansas City and Middlebury College.  We apologize to other campuses we may have omitted.  See also next article

  • Free Lunch: Reality-based economics (Financial Times)  See also preceeding article. It is too soon to say how the shock of the (largely unpredicted) financial crisis will change economics. But it is clear that it has taken some sheen off the profession in the eyes of the rest of society. Timothy Garton Ash’s characteristically readable, if unoriginal, op-ed criticising economics is just the latest illustration.  Martin Sandbu writes:

    This week I was asked to address a student gathering organised by the Rethinking Economics network about “economics and reality” — the presumption being that the two do not sufficiently coincide. Is that presumption warranted? Even the most abstruse economics is ostensibly about something. And yet, economics does sometimes seem to take leave of reality. So it’s worth understanding the different ways in which this can happen — in order to do better. They all have to do with how economics uses models, and how a model can illuminate the workings of the economy if used well but obfuscate if used poorly.

    Sandbu says that four pitfalls of traditional economics are related to the traditon of modeling: 

    1. Economic models are formed based on false assumptions.

    2. Using a model, even when underlying assumptions are not false, can restrict thinking;  i.e. the model can be like a box and sometimes thinking outside the box is informative.

    3. Use of mathematics improperly can obscure reality.

    4. Even if all three of the problems above are avoided, they can still simply be wrong; i.e. models must not fail in the face of reality - if they do then they are obviously incomplete or totally wrong.

  • The fallibility of central banks (The Economist)  Central banks have become the most powerful economic actors on the planet. In part, this is because governments have been so reluctant, since 2009, to use fiscal policy to stimulate their economies. In part, also, it is because the powers of central banks are vast, especially since they have discovered the ability to create money via quantitative easing (QE). This gives these undemocratic bodies the ability to redistribute wealth, from savers to borrowers, and from cautious types who keep the bulk of their money in cash to the better-off who own equities and corporate bonds.  And what is the source of central bank fallibilty?  The Economist implies it derives from the fallibility of economic theory, which relates to the two preceeding article, immediately above.

  • Economic Collapse: This Shows the Total Failure of Keynesian Economics (Profit Confidential)  This article has a promising title but then devolves into a presentation of the author's "faith", which starts with the presentation of Keynes as a "madman".  He uses the upcoming (June) referendum in Switzerland on the proposal to provide a basic income from the government to every Swiss citizen (on a temporary basis) as his vehicle to proclaim that the world has gone mad with the deadly Keynes virus.  His prognosis?  He has no doubts that "chaos will ultimately reign".   The reason?  His only argument is that "there is no free lunch".  QED.

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