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What We Read Today 09 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".).

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Topics today include:

  • U.S. Jobs and Job Openings

  • The Beveridge Curve

  • Government Cybersecurity is Outdated

  • Negative Interest Rates for U.S. Bonds?

  • Criminal Charges Possible in Flint Water Crisis

  • Obama Proposes New Budget

  • How Much Debt is Too Much?

  • Deutsche Bank Legal Woes

  • The New Intrigue of Bank Debt and Derivatives

  • Hundreds of Thousands More Syrian Refugees Possible

  • North Korea Back to Producing Plutonium

  • Shanghai's Growth over 20 Years

  • Goldman's Six Top Trade Calls Now Reduced to One

  • And More

Articles about events, conflicts and disease around the world

U.S.

  • In cybersecurity bid, Obama wants to retire outdated government systems (CNN)   The White House says it's working to increase the security of the federal government's computer and data systems after high-profile hacks at various agencies, including a recent breach at the Justice Department.  President Barack Obama Tuesday signed an executive order establishing a federal privacy council to ensure all of the administration's branches are using the best, most secure practices when safeguarding individual employees' information, as well as government data.

  • From ZIRP to NIRP: What's the Fed's next move? (CNBC)  Negative interest rates in the U.S. may seem like a far-fetched idea, but the Federal Reserve is telling banks to prepare, just in case.  For the first time ever, the governing agency and U.S. central bank is requiring banks to include, in a round of stress tests commencing this year, to prepare for the possibility of negatively yielding Treasury rates. The scenario is purely hypothetical and not a forecast, according to a Jan. 28 Fed news release.  Econintersect:  Remember the saying: "Cash is trash"?  The day could come when cash will be worth more that the "risk free" U.S. treasury security.

  • More Americans quitting jobs as labor market strengthens (Reuters)  U.S. job openings surged in December and the number of Americans voluntarily quitting work hit a nine-year high, pointing to labor market strength despite a slowdown in economic growth.  The signs of a robust jobs market could ease concerns about the health of the economy, which were underscored by other reports on Tuesday showing a drop in small business confidence in January to a two-year low and further declines in wholesale inventories.  See also next article and GEI reports today:  December 2015 JOLTS Job Openings Year-over-Year Growth Rate Again Marginally Improved and January 2016 Small Business Optimism Index Declines.

  • America has near record 5.6 million job openings (CNN)  There were 5.6 million job openings in December, just shy of the all-time record of about 5.7 million set in July, according to Labor Department data published Tuesday.  Good news: American companies are hiring, despite all the concern surrounding the U.S. economy. The number of job openings now is almost three times the 2.1 million during July 2009, just after the recession ended that June.  See the discussion of the Beveridge Curve later, below.

  • Investigators considering criminal charges in Flint water crisis (The Guardian)  The scope of potential criminal charges that may be considered include misconduct in office and involuntary manslaughter.  Republican Attorney General Bill Schuette is leading the investigation.

  • What the government could buy with its $4 trillion (CNBC)  President Barack Obama sent his more than $4 trillion budget for fiscal 2017 to Congress on Tuesday. It's the last budget Obama will deliver as president, and is likely to be contentious as he tries to shore up a two-term legacy and congressional Republicans vie to create gridlock going into the November elections.   The graphic below makes some comparisons of the proposed budget with the value of private companies.

fed.budget.private.companies 

UK

Consider Denmark and the United States. In 2007, Denmark’s household debt/income ratio reached 269%, while the US peak was 125%. But household default rates have been negligible in Denmark, unlike in the US, where, in the depths of the recession, almost a quarter of mortgages were ‘under water’ and some homeowners chose strategic default – fueling further downward pressure on housing prices and harming other indebted households.”

With very low interest rates, there is an argument that now is a great time for the government to borrow. At Positive Money, our position is that the government can borrow money (but doesn’t have to) from the financial markets if it wants to fund new capital investment projects.

However, we also believe that if indicators suggest that there is spare capacity in the economy, that aggregate demand is below a certain threshold – to the extent that price stability is endangered – then the Bank of England should step in. It shouldproactively create new money to finance government expenditure up until indicators for aggregate demand reached the desired threshold.

Thus, while interest rates are low and the government can benefit from low borrowing costs, with the UK in disinflation territory and aggregate demand not at its desired level (despite cheap oil prices and increasing real wages) the Bank of England should be creating money to finance expenditure. This is why we suggest using Sovereign Money Creation to stimulate economy.

Germany

  • Train crash in Germany kills at least 10, injures 80 (Associated Press)  Two commuter trains crashed head-on Tuesday in southern Germany, killing 10 people and injuring 80 as they slammed into each other on a curve after an automatic safety braking system apparently failed, the transport minister said.  The regional trains collided before 7 a.m. (0600 GMT) on the single line that runs near Bad Aibling in the German state of Bavaria

Syria

  • Exclusive: Damascus vows to recapture Aleppo from rebels (Reuters)   Damascus aims to secure Syria's border with Turkey and recapture the city of Aleppo with its latest military offensive, a top adviser to President Bashar al-Assad said on Tuesday.  In an interview in her Damascus office, Bouthaina Shaaban held out little hope for diplomatic efforts to end the five-year civil war, telling Reuters proposals for a ceasefire were coming from states that "do not want an end to terrorism" and wanted to shore up insurgents who are losing ground.  The Syrian army, backed by Russian air strikes and Iranian and Lebanese Hezbollah fighters, has launched a major advance in recent weeks near Aleppo, once Syria's biggest city, now divided between rebel- and government-held sectors.  See next article.

  • U.N. fears for hundreds of thousands if Syria troops encircle Aleppo (Reuters)   Hundreds of thousands of civilians could be cut off from food if Syrian government forces encircle rebel-held parts of Aleppo, the United Nations said on Tuesday, warning of a new exodus of refugees fleeing a Russian-backed assault.  The army aims to secure the border with Turkey and recover control of Aleppo, a senior adviser to Syrian President Bashar al-Assad told Reuters, adding that she did not expect diplomacy to succeed while foreign states maintain support for insurgents.

North Korea

China

shanghai1990.2010


The Beveridge Curve (about education)  The Beveridge curve, named after economist William Beveridge, was developed in the mid twentieth century in order to depict the relationship between job vacancies and unemployment.  In most cases, the Beveridge curve slopes downward and is bowed toward the origin, as shown in the diagram above. The logic for the downward slope is that, when there are a lot of unfilled jobs, unemployment must be relatively low or otherwise the unemployed people would go work in the empty jobs. Similarly, it stands to reason that job openings must be low if unemployment is high.  See first graph below.  But there can be more than one Beveridge curve (second graph below).  The curve on the left is considered to represent a "more efficient" labor market, i.e. those unemployed are better matched to the job openings.  Another terminology for curves shifted to the right is that those labor markets have greater "structural imbalances".

BeveridgeCurve2

BeveridgeCurve3


The US Beveridge Curve continues to show skills mismatch (Walter Kurtz, Sober Look, Twitter)  Kurtz shows the changes in structural balances in the U.S. labor market since 2000:

us.beveridge.curve.2000.201

Other Economics and Business Items of Note and Miscellanea

It wasn't apparent at the time. But today we can look back and observe how The Big Lie campaign-- promoting the meme that Fannie Mae, Freddie Mac and U.S housing policy caused the financial crisis--was launched just after 1:42 p.m. on September 15, 2008, exactly twelve hours after Lehman Brothers filed for bankruptcy. At the White House, Treasury Secretary Henry Paulson came forward to address an anxious nation and financial leaders. 

The British political and media establishment incrementally lost its collective mind over the election of Jeremy Corbyn as leader of the country’s Labour Party, and its unraveling and implosion show no signs of receding yet. Bernie Sanders is nowhere near as radical as Corbyn; they are not even in the same universe. But, especially on economic issues, Sanders is a more fundamental, systemic critic than the oligarchical power centers are willing to tolerate, and his rejection of corporate dominance over politics, and corporate support for his campaigns, is particularly menacing. He is thus regarded as America’s version of a far-left extremist, threatening establishment power.

goldman.dollar.misfire

goldman.bond.misfire

  • How the Bank Debt That Everyone Is Talking About Works: Q&A (Bloomberg)  Deutsche Bank AG’s attempts to reassure investors about its ability to pay its debts have shone a spotlight on a type of security that didn’t exist as recently as three years ago. Here’s what you need to know about CoCo bonds.  Deutsche Bank may struggle to pay coupons to investors in its Additional Tier 1 securities, also known as CoCos, in 2017, analysts at CreditSights Inc. wrote Monday. This helped trigger a sell-off in the bank’s shares and bonds, while the cost to insure against a default on its debts climbed. The bank issued a statement saying it had plenty of capacity to make the interest payments.  A contingent convertible capital instrument, or CoCo, is a type of bond designed by regulators after the financial crisis. The bonds allow banks to skip interest payments without defaulting, and they’re designed to convert to common equity or suffer a principal writedown if a bank runs into trouble. This provides a buffer in times of stress while inflicting losses on CoCo investors.


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