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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It’s not surprising that it’s not being discussed. The mainstream media, they believe in the Federal Reserve and the same with the debate moderators. They all go to public school and state-supporting universities where they receive this indoctrination that a central bank is essential to a governmental system, even though America lived without a central bank for over 125 years.
And of course the candidates aren’t discussing it, because this is the means by which they monetize their debt. They all call for out of control federal spending to finance their wars and their new bombing campaigns and their welfare state, Social Security, Medicare, Medicaid, all the rest, and they know the tax revenues aren’t sufficient, they know the mountain of government debt is rising, and so that’s the Federal Reserve’s job. It’s just a great big racket where they monetize the debt and create the booms and busts, and they make it look like, ‘oh, it’s those rapacious businessmen who are just raising prices,’ when really it’s the Federal Reserve that is plundering and looting people through the debasement of the inflationary process.
Economic models predict GOP White House, even with Trump (The Hill) Republicans are expected to win the White House under two economic models that have accurately forecast presidential elections for decades. A third model run by Moody’s Analytics predicts Democrats will win the White House, in part because of President Obama’s rising approval rating.
It looks like the US economy almost shrank in the first quarter (Business Insider) More economists are forecasting that the US economy nearly shrank in the first quarter. On Friday, the Commerce Department released data on February wholesale inventories, which showed that they fell by a more-than-expected 0.5%. This was the biggest month-on-month drop in nearly three years. The updated data on January showed that wholesale inventories actually contracted in that month, by 0.2%, from a prior estimate of 0.3%. The part of inventories that feeds directly into the GDP, which counts stock excluding autos, fell 0.4%. After Friday's report, several economists lowered their expectations for first-quarter Gross Domestic Product (GDP). And the Atlanta Fed lowered their outlook to zero.
Boy's trans-Atlantic text, fast police work save 15 migrants (Associated Press) The text message from a young boy, writing in broken English on a no-frills cellphone, was frightening enough to set off a frantic, trans-Atlantic search that saved the lives of 15 migrants trapped in a locked truck in England. The message flashed on the cellphone of volunteer Liz Clegg, who was attending a conference in New York: "I ned halp darivar no stap car no oksijan in the car no signal iam in the cantenar. Iam no jokan valla." It was written by Ahmed, an Afghan boy of about 7, trying to say: "I need help. The driver won't stop the car. No oxygen in the car. No signal. I'm in a container. I am not joking. I swear to God." In March, Clegg and others volunteering at a squalid migrant camp in Calais, France, had handed out hundreds of basic cellphones to children living there, programming in a number for them to text in a crisis. Calls were made back across the Atlantic and the group was found and rescued.
U.S. deploys B-52 bombers to Qatar for fight against Islamic State (Reuters) The U.S. Air Force deployed B-52 bombers to Qatar on Saturday to join the fight against Islamic State in Iraq and Syria, the first time they have been based in the Middle East since the end of the Gulf War in 1991. U.S. Air Forces Central Command said it last flew the long-range bombers operationally in the region in May 2006 as part of the war in Afghanistan, and during a U.S.-led military exercise in Jordan in May 2015.
Saudi Arabia and Egypt announce Red Sea bridge (BBC News) Saudi Arabia's king has announced that a bridge linking the country to Egypt will be built over the Red Sea. King Salman said in a statement that the bridge would boost commerce between the two allies. He made the announcement during the second day of his visit to the Egyptian capital, Cairo. Saudi Arabia and other Gulf countries have supported Egypt with billions of dollars since President Sisi took power in 2013 following mass street protests. Saudi Arabia regards Egypt as a crucial partner in efforts to build a bloc of friendly Sunni Muslim states as a bulwark against growing regional influence of Shia-led Iran.
The Economics of Ukraine’s Political Crisis (Atlantic Council) Ukraine has made great economic strides in the past year but the leading ministers responsible are being ousted. This article says it is because the ousted ministers, with the backing of the IMF (International Monetary Fund), had agreed to see that Ukraine has a government that is more interested in enriching the Ukrainian people than the members of the cabinet. And the corrupt oligarchy is still in control so the reformers had to go.
Econintersect finds merit in the definition of the problem with the currently structured monetary system in the article. Specifically:
The Fed monetizes debt;
The Fed monetary management process creates booms and busts; and
The Fed process creates inflation.
But the suggested solution is very misleading:
There’s really only one solution to this monetary chaos, and that is the libertarian idea of separating money and the state, abolishing this socialist institution known as the Federal Reserve, and institute a free market monetary system.
This solution is not the only one, we suggest it is not even among the best solutions that could proposed. Some of the reasons:
It depends on the assumption of a mythical free market system where competition determines the best price of everything;
It concentrates control of money creation with private banks even more than with the current Federal Reserve system;
It provides no mechanism for profit outside of those who are involved in the credit creation system (banks);
It blatantly ignores the reverse side of the Fed/No Fed coin which was experienced before 1913: vicious cycles of inflation and deflation due to insufficient money to service credit created.
Here are just a few factors in support of the items above:
2. The control of money creation since 1913 has, at least in a very limited sense, been a collaborative effort of private banking and the government. Before 1913 private banking had more singular control, with the relatively minor exception of the greenback printing authorized by Lincoln to fund the Civil War. This era, legendary in the minds of utopian libertarians, produced economic growth as the country's population and occupied land area exploded, but also created wealth concentration greater than that seen in the 1929 peak and the current high level. The great middle class of the second half of the 20th century did not exist.
3. How does an economic system produce profit (for non-lending agencies) if there is a fixed amount of base money? If all non-base money is credit (current system) then a dollar invested which was created by a loan must be repaid with interest. That means that the dollar loan when repaid from returns on its investment will remove money from the system. If interest payments amount to the same as the principle after full repayment (like 5% simple interest for 20 years), then not only is the credit money "extinguished" but a second dollar is also removed from the non-banking economy. In addition, the borrower would only have taken credit if he expected to make a profit. With a fixed monetary base, profit can only accrue to one party if experienced as a loss by another party. Such an economy does not expand and great concentrations of wealth accrue to a very few.
4. The longed-for return to the century before the Fed would be far different from what proponents would have you believe if that time were reproduced again. Incessant repetitive cycles of inflation and deflation occurred (see Doug Short's first chart below for 1870-2015.) And monetary deflation was pervasive. This means that those who were able to hoard money increased wealth at the expense of those who started with little or no money. (See Doug Short's second chart below.)
As far as economic growth is concerned, there is no basis for saying that economic growth was greater before 1913 than since. See the two graphics below which show economic growth since 1775 (first graph) and (second graph) the economic growth per capita from 1880 to 1930 (1.5% ave. per annum) was less than from 1920 to 2000 (1.9% per annum). Graphics below are from U.S. Economic Growth: Some Basic Facts (isites.harvard.edu).
Other Scientific, Health, Political, Economics and Business Items of Note - plus Miscellanea
Nemmers Prizes in Economics and Mathematics Announced (Northwestern University) Sir Richard Blundell, the David Ricardo Professor of Political Economy at University College London, and János Kollár, the Donner Professor of Science and Professor of Mathematics at Princeton University, are the recipients of the prestigious 2016 Nemmers prizes in economics and mathematics, respectively. The prizes are awarded every other year in recognition of major contributions to new knowledge or the development of significant new modes of analysis. Blundell was selected for his important contributions to labor economics, public finance and applied econometrics. “His research improves the foundations for economic policy and furthers our understanding of economic behavior,” the selection committee noted. Kollár was selected for his “fundamental contributions to algebraic geometry, including the minimal model program and its applications, the theory of rational connectedness and the study of real algebraic varieties”.
The economics of self-confidence (New Boston Post) Which types of people typically move to major cities, such as New York, Washington, D.C., or Boston? A recent study suggests that a person’s personality might have more influence on the decision to move to the city than either wealth, education or age. In fact, self-confidence might play a strong role in who migrates into major metropolitan areas, according to a study, authored by economists Jorge De la Roca of the University of Southern California, Gianmarco Ottaviano of the London School of Economics, and Diego Puga of the Center for Monetary and Financial Studies in Madrid.
The Strange Case of the Missing Crisis (The Wall Street Journal) This article discusses what emerging markets have—and haven't—learned from earlier downturns. Capital has been flowing out of emerging markets for several years, driven by slowing growth, tumbling commodity prices, and the prospect of higher U.S. interest rates. Oddly enough, no big emerging country has gone bust as a result. The absence of a crisis is not normally worth noting. But it is in this case, because it demonstrates how much the emerging world has learned about the inherent dangers of fixed exchange rates, and, sadly, how much more they still have to learn. While the current slowdown is comparable to previous occasions that prompted major emerging market credit crises, this time has been more benign. The situation now is better because of improved monetary policies, which are discussed in detail.
Gold's Rally Far From Being Over - Capital Economics (Kitco) Despite gold’s rally losing some steam, one U.K.-based research firm remains optimistic on the yellow metal’s price this year. Gold prices remain up on the year but have recently lost steam as stronger U.S. employment and manufacturing data have reignited prospects of Federal Reserve rate hikes this year. After hitting its high of $1,272 an ounce in March, gold futures have come down with June Comex gold last quoted at 1,243.20 an ounce. According to Simona Gambarini, commodities economist for Capital Economics, in a research note Friday morning:
“We think that gold’s rally this year is far from being over. We expect building inflationary pressures in the U.S. to keep real interest rates low, boosting the attractiveness of gold as a store of value.”
SpaceX Successfully Lands Rocket on Drone Ship (Bloomberg) Elon Musk's SpaceX successfully launched a rocket from Cape Canaveral, Fla., on Friday at 4:43 p.m. EDT. The mission, officially known as CRS-8, is the company's eighth cargo resupply mission to the International Space Station. The launch itself was largely routine for SpaceX: the real excitement began when the Falcon 9 completed its burn and landed upright on the drone ship for the first time. This was the fifth attempt to recover the rocket's first stage on a drone ship in the Atlantic Ocean.
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