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:
Global Stock Rout
U.S. Treasuries and Gold Surge
Oil Crashes to 13-year Low
Einstein's Gravity Waves Have Been Measured
Jimmy Kimmel Demonstrates American Exceptionalism
The Economist says the U.S. has been "Trumped and Berned"
Why Women Like Living in Norway
Kurds Allied with Russians
India Bank Profits Sink Due to Bad Loans
Whip Deflation Now!
What Do Negative Interest Rates Really Mean
Articles about events, conflicts and disease around the world
Shares plunge on global growth, bank fears; U.S. yields fall (Reuters) Stock indexes worldwide stumbled on Thursday on fears over the health of the global economy, with banking shares slumping on both sides of the Atlantic, while safe-haven 10-year Treasury yields hit their lowest since 2012. Concern over sluggish global growth and doubts over central banks' ability to support the global economy pushed the U.S. benchmark S&P 500 .SPX index and the Dow Jones industrial average down more than 10 percent for the year. The FTSEurofirst 300 .FTEU3 index of top European shares sank to its lowest level in two and a half years. The dollar hit its lowest against the safe-haven yen since October 2014 of 110.985 yen, and was on track for its worst week against the Japanese currency since 2008 on the fears over the health of the global economy. Read Gary's latest market reports at GEI.
Oil crash taking stocks down ... again (CNN) The dramatic crash in oil prices has returned with a vengeance. U.S. crude futures dropped as much as 5% on Thursday, driving prices below $27 for the second time in recent weeks. It settled at $26.21, the lowest point since 2003.
Breakthrough: Scientists detect Einstein's gravity ripples (Associated Press) In an announcement that electrified the world of physics, scientists said Thursday that they have finally detected gravitational waves, the ripples in the fabric of space-time that Einstein predicted a century ago. Astronomers hailed the finding as an achievement of historic proportions, one that opens the door to a new way of observing the universe and the violent collisions that are constantly shaping it. For them, it's like turning a silent movie into a talkie because these waves are the soundtrack of the cosmos in action.
Oil Industry Caused 2005 Swarm of California Earthquakes: Newly Published Study (Desmog) Oil and gas wastewater disposal has been tied to a series of earthquakes in California for the first time, in a peer-reviewed study published last Thursday. A string of quakes ending on Sept. 22, 2005 struck in Kern County near the southern end of California's Central Valley – and the new study, published in Geophysical Research Letters, concluded that the odds that those quakes might have occurred by chance were just 3%. Instead, the researchers honed in on a very specific set of culprits: three wastewater injection wells in the Tejon Oil Field. Between 2001 and 2010, the rate of wastewater injection at that oil field quintupled, and up to 95% of that wastewater was sent to just that trio of closely-spaced wells, the scientists noted. The largest of the earthquakes in the swarm measured magnitude 4.6 on the Richter scale meaning that the quakes were relatively small, unlikely to have done any damage to buildings but significant enough to be felt by those in the area. Of course natural quakes are far more numerous and sometimes much stronger than the quakes studied.
Kurdish forces said to take air base near Turkish border (Reuters) Kurdish fighters backed by Russian bombing raids have driven Syrian rebels from a former military air base near the border with Turkey, a group that monitors the war said on Thursday. Rebel groups have been distracted by a major offensive in the area by the Syrian army and its Russian and other allies, allowing the Kurds to capture the base and expand their foothold in the north. The Syrian Observatory for Human Rights, which tracks the war through a network of sources on the ground, reported heavy fighting between Kurds and Syrian rebels around Menagh air base, a former Syrian air force facility that had fallen into rebel hands.
SBI sees bad loan pressure persisting as profit sinks (Reuters) State Bank of India (SBI), the nation's top lender by assets, reported its biggest fall in quarterly profit in nearly five years as bad loan provisions jumped after a central bank drive to clean up bad debts in India's banking industry. The lender, which accounts for almost a quarter of India's banking business, said it expected provisions for bad loans to remain high in the current quarter as well. The Reserve Bank of India, the banking sector regulator, has asked lenders to treat some troubled accounts as official bad loans and make adequate provisions. The central bank is attempting to clean up India's bank balance sheets by March 2017.
Mexico prison riot leaves 52 dead near Monterrey (BBC News) A battle between rival groups at a prison near Monterrey in northern Mexico has left 52 inmates dead. Nuevo Leon state Governor Jaime Rodriguez said 12 other people were injured in Topo Chico jail after prisoners fought with "sharp weapons, bats and sticks". A fire was also started in a storage room. Officials say the situation is under control and no inmates escaped.
Other Economics and Business Items of Note and Miscellanea
Sen. Warren, Rep. Cummings accuse financial industry of crying wolf on DOL fiduciary (Investment News) Wall Street critics in Congress are accusing the financial industry of talking out of both sides of its mouth when it comes to a pending Labor Department rule that would raise investment advice standards for retirement accounts. Sen. Elizabeth Warren, D-Mass., and Rep. Elijah Cummings, D-Md., assert that four large insurance companies — Jackson National Life Insurance Co., Lincoln National, Prudential Financial and Transamerica Corp. — have been lamenting to the agency that the rule is complex and costly while telling shareholders it will have little impact on their businesses.
Obama proposes curbs to retirement-savings tax incentives for wealthy, heirs (Investment News) The measures, which affect 401(k) and IRA limits and beneficiary withdrawals, have been proposed in previous budgets to no avail, but still worry financial industry groups. Under the provision, a saver would not be able to make tax-deferred contributions to defined-contribution or individual retirement accounts if the account produces an annual benefit of more than $210,000. The current maximum build-up permitted in the accounts is $3.4 million. The proposal would keep them from growing beyond that level.
Whip Deflation Now (Jared Dillian, Mauldin Economics) Remember Gerald Ford's campaign to "WIN"? That was the acronym for "Whip Inflation Now". Of course it was another 5-6 years before the "terminator" went into action when Paul Volker used 18% interest rates to turn the tide. Here Dillian talks about the opposite campaign to "terminate" deflation. He points out two seemingly contradictory data points: increasing global assets paying negative interest and rising U.S. wage and income levels. See the graphs below. Dillian has the opinion that the rising wage expectations will be born out and inflation will reach 3-4% within "a couple of years". That would make the current bond market action in "a bubble" with crushing losses to come (unless one holds to maturity). He suggests buying gold and commodities, not owning bonds and selling high fliers like Amazon (NASDAQ:AMZN). See also next article.
Negative creep (The Economist) The negative-rates club is growing. But there is a limit to how low rates can go, according to the economist. But they do not define what that limit is.
Econintersect: Let's take a different look at what negative interest rates mean from the point of view of supply and demand. The -1% deposit rate for Switzerland indicates the expectation that the Swiss franc will buy about 10% more than it will today in 10 years. (To be exact, the expectation is for 10.46% more value.) Why will it buy more? Well, for just the opposite reason that +1% interest rates indicate a 10% loss of value expectation over 10 years. With the loss of value the effect is known as inflation which is generally considered due to too much money chasing too few goods. The solution for inflation is to make money more expensive or less available. The opposite applies for monetary deflation implied by negative interest rates: There is not enough money available to buy the goods available. In the current environment the shortage results from an excess of "debt goods" to be bought. So the solution to deflation is either to make the goods more scarce (write off debt) or increase the amount of money available. QE is a process attempting to make debt instruments more scarce in the economy, although the scarcity may be temporary if the central bank later sells debt securities, as opposed to debt write-off which is forever permanent. ("Forever permanent " is a deliberate redundancy, for emphasis.) See the preceding article for a view that rising wages and incomes are going to supply the money that will reduce deflation (or increase inflation).
But we ask the following question: Where will the money come from to pay the higher wages? The choices we suggest are (the third is not done today with the existing monetary system):
Fewer people employed.
More debt to create additional money.
Infusion of money without the creation of debt.
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