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 dayin the early am at GEI News (membership not required for access to "The Early Bird".).
IMF Warns of Possible ‘Spiral’ of Waning Growth, Escalating Debt (Bloomberg) Global policy makers need to guard against a self-reinforcing “spiral” of weakening growth and rising debt that could require a coordinated response by the world’s major economies, according to the IMF’s top fiscal watchdog. Most countries are on a higher debt path than they were a year ago, the International Monetary Fund said in its semi-annual Fiscal Monitor report released Wednesday. Fiscal deficits in 2015-2016 in emerging economies are projected to exceed levels during the global financial crisis, as countries struggle with low oil prices, cooling investor sentiment and intensifying geopolitical tensions.
5 major banks fail 'too big to fail' test; Citi's plan passes (CNBC) Five out of eight of the biggest U.S. banks do not have credible plans for winding down operations during a crisis without the help of public money, federal regulators said on Wednesday, saying the institutions could face stricter oversight if they do not fix their plans. The "living wills" that the Federal Reserve and Federal Deposit Insurance Corporation jointly agreed were not credible came from Bank of America, Bank of New York Mellon, JPMorgan Chase, State Street,Wells Fargo. The requirement for a living will was part of the Dodd-Frank Wall Street reform legislation passed in the wake of the 2007-2009 financial crisis, when the U.S. government spent billions of dollars on bailouts to keep big banks from failing and wrecking the U.S. economy. See also next article.
U.S. Regulators Request Probes Into Leak of Banks' Living Wills (Bloomberg) U.S. regulators have asked their internal watchdogs to examine how assessments of banks’ plans for winding down during a potential bankruptcy ended up in a news article. The Federal Reserve and Federal Deposit Insurance Corp. requested that inspectors general investigate whether someone at their agencies’ leaked details on banks’ so-called living wills, spokesmen for the regulators said in interviews Wednesday. The decision follows a Tuesday report in the Wall Street Journal that said the Fed and FDIC found flaws in multiple lenders’ plans.
JPMorgan earnings beat could be bad for Wall Street (CNBC) JPMorgan Chase topped analyst estimates with earnings of $1.35 a share and revenue of more than $24 billion, but the investment bank's triumph over lower expectations shouldn't necessarily be viewed as positive news for Wall Street. Every Wall Street bank saw reduced first quarter expectations to begin the year, in part thanks to a rocky start to 2016 on mergers and acquisitions and credit markets. But JPMorgan, which saw shares rise by more than 3% at the open Wednesday, could be an outlier for the banking sector and not a leading indicator.
25% of Europe Quits Coal (Eco Watch) Belgium has become the latest country to shut down its last remaining coal-fired power station, Langerlo. This brings to 25% the fraction of European countries to have eliminated coal burning to produce electricity. Europe joins China and the U.S. in the list of regions moving forward on the path away from coal. However, some countries are not on this bandwagon. Poland plans to increase coal-fired generation and England still debates coal burning, even while Scotland has shuttered its last coal operation.
Macedonian police fire tear gas at migrants on Greek border (Reuters) Macedonian police fired tear gas on Wednesday to disperse around 50 migrants stranded in Greece who tried to pull down part of the razor wire fence separating the two countries. Tensions have boiled over at the makeshift migrant camp near the town of Idomeni, where more than 10,000 migrants and refugees have been stranded since February, when Balkan countries shut their borders to anyone wanting to head north.
Syrian official rules out Assad departure ahead of talks (Associated Press) A top Syrian official urged the opposition to let go of its dream of easing President Bashar Assad out of power in a transitional government, complicating peace talks that resumed Wednesday in Geneva on ending the five-year civil war. As Syrians voted in parliamentary elections in government-held parts of the country — balloting the opposition dismissed as a sham — Deputy Foreign Minister Faisal Mekdad told The Associated Press that a transitional government amounts to a coup d'etat and "will never be accepted". A transitional government is the centerpiece of the peace program that the United States, Russia and other world powers agreed on at a 2012 Geneva Conference.
Russian warplanes 'aggressively' pass US missile destroyer (BBC News) Two Russian planes flew close to a US guided missile destroyer almost a dozen times, American officials have said. The Sukhoi SU-24 warplanes, in international waters in the Baltic Sea, had no visible weaponry and the ship took no action. One official called the events on Monday and Tuesday "one of the most aggressive acts in recent memory". The commander of the missile destroyer, the USS Donald Cook, described the flights as a "simulated attack". The passes were "unsafe, potentially provocative" and "could have caused an accident," officials told the Wall Street Journal.
Symbolic Victory for Clean Energy as North America’s Largest Coal-Fired Power Plant Will Soon Be Home to a Solar Farm (Eco Watch) On the shores of Lake Erie in Ontario the mothballed site of what used to be North America's largest coal fired power plant will soon be home to a solar farm called Nanticoke Solar. The new project is a joint venture of Sun Edison Canadian Construction and the Six Nations of the Grand River Development Corporation. The start-up capacity of the solar farm is msall, just 1% of what the coal-fired operation used to produce but is another step of the province's effort to replace coal with renewable energy sources. So far Ontario's carbon emissions are 6% below the peak levels of 1990.
The New York Fed has unveiled a hot new forecasting tool for the US economy (Akin Oyedele, Business Insider) The New York Fed is putting out a trial horse against the Atlanta Fed's GDP Now model. (See next article.) In a post on Tuesday, the New York Fed introduced the FRBNY Nowcast, a tool that will use the latest data releases to compute estimates for gross domestic product daily.
GDPNow:Latest forecast: 0.1 percent — April 8, 2016(Altanta Fed) he GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2016 is 0.1 percent on April 8, down from 0.4 percent on April 5. After this morning's wholesale trade report from the U.S. Bureau of the Census, the forecast for the contribution of inventory investment to first-quarter real GDP growth fell from –0.4 percentage points to –0.7 percentage points. The next GDPNow update is Wednesday, April 13.
Other Scientific, Health, Political, Economics and Business Items of Note - plus Miscellanea
What tools does the Fed have left? Part 3: Helicopter money (Ben Bernanke, Brookings) Bernanke says that in recent years, legislatures in advanced industrial economies have, for the most, part been reluctant to use fiscal tools to combat deflation, in many cases because of concerns that government debt is already too high. The former Fed chair suggests that, rather than issuing debt to the public (the usual means of creating new money - called deficit spending) the Fed could create the money directly with a loan to the government. Then this money could be dropped (as if by a helicopter) into the bank accounts of the citizenry, using tax rebates for example. (Note: For a critique of Bernanke's proposals, see next article.) He writes:
In this context, Milton Friedman’s idea of money-financed (as opposed to debt-financed) tax cuts—“helicopter money”—has received a flurry of attention, with influential advocates including Adair Turner, Willem Buiter, and Jordi Gali.
In this post, I consider the merits of helicopter money as a (presumably last-resort) strategy for policymakers. I make two points. First, in theory at least, helicopter money could prove a valuable tool. In particular, it has the attractive feature that it should work even when more conventional monetary policies are ineffective and the initial level of government debt is high. However, second, as a practical matter, the use of helicopter money would involve some difficult issues of implementation. These include (1) the need to integrate the approach with standard monetary policy frameworks and (2) the challenge of achieving the necessary coordination between fiscal and monetary policymakers, without compromising central bank independence or long-run fiscal discipline. I propose some tentative solutions for these problems.
Don't Trust Ben Bernanke On Helicopter Money (Steve Keen, Forbes) SK has contributed to GEI. According to Prof. Keen, while Ben Bernanke's discussion of the nuts and bolts is realistic, his discussion of how "helicopter money" would work is fantasy. The fantasy occurs in the use of standard economic modeling that assumes individuals spend based on their "inflationary expectations" and anticipation of "future tax burdens". Steve says these modeling assumptions were "dreamed up" to justify a belief that "government policy was ineffective". (Econintersect: This is one of the aspects of economics that more closely resembles philosophy and theology than objective science.) But, as Steve says at the beginning of this essay, Bernanke's nuts and bolts are correct (it's just his tortured rationale that's off) and the implementation proposed by Bernanke (and supported by Steve, although he suggests it's not the only viable approach ) is quoted:
Ask Congress to create, by statute, a special Treasury account at the Fed, and to give the Fed (specifically, the Federal Open Market Committee) the sole authority to “fill” the account, perhaps up to some prespecified limit. At almost all times, the account would be empty; the Fed would use its authority to add funds to the account only when the FOMC assessed that an MFFP of specified size was needed to achieve the Fed’s employment and inflation goals.
Should the Fed act, under this proposal, the next step would be for the Congress and the Administration—through the usual, but possibly expedited, legislative process—to determine how to spend the funds (for example, on a tax rebate or on public works). Importantly, the Congress and Administration would have the option to leave the funds unspent. If the funds were not used within a specified time, the Fed would be empowered to withdraw them.
Worst corporate debt levels since Great Recession may hamstring Fed (Market Watch) Easy-money policies from the Federal Reserve helped grease the wheels of the economy and fuel a corporate binge on buybacks and mergers, but as corporate debt reaches levels not seen since the Great Recession, the Fed may find that dialing interest rates back up may be a difficult task. Investors have reason to be worried about all that cheap money, according to a Tuesday note from Joseph LaVorgna, chief U.S. economist at Deutsche Bank (NYSE:DB).
The Political Center Is Shifting to the Left (Bloomberg) The traditional center-left is in retreat in Europe, and to a somewhat lesser extent in the U.S. This could be seen as a failure of the centrist-socialist establishment, though it might make sense to see it from a different perspective: An attractive, modern alternative has presented itself. Instead of the left shifting toward the center, the center is now shifting toward the left. There is a difference - the new shift tends to isolate the right and could lead to a relative strengthening of the center-right. In the U.S. that would be the pre-Reagan Republican Party.
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