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What We Read Today 12 May 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:

  • World's Greatest Con:  Monetary Policy Matters

  • Natural Rate of Interest is a Make-Believe Concept

  • Is there Such a Thing as an Equity Risk Premium?

  • Trump and Ryan Agree on Total Commitment to Uniting the GOP

  • Ryan Still Won't Endorse Trump

  • Democrats Aim to Retake the House

  • Judge Strikes Down Obamacare Insurance Subsidy

  • Brussels E-Mail to Shut Railway Before Bombing Sent to Wrong Address

  • French Government Survives Vote to Curb Unions

  • Ganges:  The River of Poison

  • Rousseff is Ousted

  • And More

Articles about events, conflicts and disease around the world

U.S.

“While we were honest about our few differences, we recognize that there are also many important areas of common ground.  We will be having additional discussions, but remain confident there’s a great opportunity to unify our party and win this fall, and we are totally committed to working together to achieve that goal.”

  • Democrats Aim to Retake House (Real Clear Politics)   Republicans have their largest House majority since the Great Depression, thanks to sweeping electoral gains over the last six years. But Donald Trump’s rise has led to concerns about the fate of Republican candidates down the ballot this fall and whether his divisive candidacy and lack of Republican unity will cost the GOP seats in Congress.   Democrats have enthusiastically tied Republican lawmakers to Trump for months, and the hypothetical Trump ticket became a reality last week when the billionaire businessman all but secured the Republican nomination earlier than most expected.

  • Obama Gas Rules Set Table For Wide Emissions Cut, If Trump Loses (Bloomberg)  Today the Obama administration issued rules requiring the industry to tighten up any new and renovated infrastructure. The move is a first step in realizing a goal Obama first articulated in January 2015, when he pledged to cut U.S. methane emissions over a decade to 45 percent below 2012 levels. In addition to being good for the planet, the gas saved may be worth $100 million.  Oil-and-gas producers have a financial incentive to make sure methane isn't leaking from wells and pipelines. Yet methane has become a well-documented problem. And once it joins the atmosphere, scientists will tell you, it becomes a potent greenhouse gas, one that's responsible for a quarter of the Earth's extra heat.   Either Clinton of Sanders would be expected to continue or extend this action, but Trump is not likely to continue it..

  • Judge strikes down Obama health law insurance subsidy in victory for House GOP (The Washington Post)   A federal judge struck down a portion of President Obama’s signature Affordable Care Act health law on Thursday, ruling that Obama exceeded his executive authority in unilaterally funding a provision that has subsidized billions of dollars of insurers’ costs.  In a 38-page decision, U.S. District Judge Rosemary Collyer of the District stayed the ruling’s effect pending the administration’s certain appeal. Her decision sided with the U.S. House of Representatives, which brought the lawsuit challenging more than $175 billion of spending after a party-line vote by House Republicans in July 2014.  The House GOP argued the Obama administration’s decisions to fund payments to reduce deductibles, co-pays and other “cost-sharing” were unconstitutional, saying lawmakers rejected an administration request for funding in 2014.  Obama officials said they withdrew the request and spent the money, arguing the subsidies were covered by an earlier, permanent appropriation.

  • Sanders campaign: Dems 'court disaster' in Clinton (CNN)   Bernie Sanders' campaign manager Jeff Weaver sent a sharply worded fundraising appeal on Wednesday, saying that Democrats "court disaster" by nominating Hillary Clinton.  He also insisted -- despite the fact that Sanders trails Clinton in both pledged delegates and superdelegates and faces a nearly impossible path to the nomination -- that there will be a contested Democratic National Convention.   Bernie Sanders' campaign manager Jeff Weaver sent a sharply worded fundraising appeal on Wednesday, saying that Democrats "court disaster" by nominating Hillary Clinton.  He also insisted -- despite the fact that Sanders trails Clinton in both pledged delegates and superdelegates and faces a nearly impossible path to the nomination -- that there will be a contested Democratic National Convention.  Weaver wrote:

 "The Democratic Party must decide if they want the candidate with the momentum who is best positioned to beat (Donald) Trump or if they are willing to roll the dice and court disaster simply to protect the status quo for the political and financial establishment of this country." 

EU

  • The email that was supposed to prevent the Brussels metro attack was sent to the wrong address (The Washington Post)   It was 9:07 a.m. on March 22 when Belgian police's directorate of operations sent out an email ordering the closure of the Brussels metro.  Earlier that morning, about 8 a.m., there was an explosion at Brussels Airport. It took federal police almost an hour to conclude that their city was under attack and that all metro lines and major train stations needed to close.  But when police finally sent an email to order that closure, they sent it to the wrong address, a parliamentary committee has learned.  At 9:11 a.m., a bomb went off in a metro train that was about to leave Maelbeek station. Sixteen more minutes lapsed before the city's metro system was finally closed. The Islamic State militant group later asserted responsibility for the attacks.  According to Politico Europe, authorities sent the crucial email to the private account of Jo Decuyper, the head of the city's railway police, rather than to his official address.  But, even if sent to the right address the result would have been the same - the email was sent too late to have any chance of preventing the railway bobmbing.

France

  • France labour reforms: Government survives no-confidence vote (BBC News)  France's government has survived vote of no confidence put forward by the opposition in protest over controversial labor reforms, viewed as pro-business and anti-labor.  The motion, brought by the centre-right party Les Republicans, garnered 246 votes, 42 shy of the 288 needed to defeat the reforms and topple the government.  Thousands of people marched through Paris as the vote took place, to protest against the proposals.  They will now be debated in France's Senate.

India

  • India's dying mother (BBC News)  Even in the source regions of the Himalayas the Ganges waters are already polluted.  By the time they reach the plains of India the legendary river’s problems become more pronounced.  But even with the support of Prime Minister Nerendra Modi to clean the river, the endemic corruption and mismanagement have seen the pollution increasing.

Brazil

  • Brazil president blasts critics, vows to fight impeachment (Associated Press)  Brazil's suspended President Dilma Rousseff vowed Thursday to use "all legal means" to fight permanent ouster in an impeachment trial, raising the specter of continued political turmoil as interim leader Michel Temer tries to rescue a sinking economy.  She was automaticly suspended from office for 180 days when the Senate voted to proceed with the impeachment trial.  Rousseff blasted the process as "fraudulent" and said it was an injustice more painful than the torture she endured under a past military dictatorship.

  • New president, same crises in Brazil (AFP, MSN News)  It could be a short honeymoon for Brazil's interim president Michel Temer, who replaces a deeply unpopular leader but inherits many of the same problems.   Although Temer, a 75-year-old veteran of the center-right, has the backing of the business world, political analysts say he will likely hit many of the same stumbling blocks as did leftist Rousseff, including extreme unpopularity: 

"While Rousseff's approval rating has tumbled below 10 percent, Temer would receive just one to two percent of the vote in presidential elections, according to a recent poll."

Other Scientific, Health, Political, Economics and Business Items of Note - plus Miscellanea

  • The Idolatry of Interest Rates Part I: Chasing Will-o’-the-Wisp (GMO White Paper)  James Montier does a sarcastic take-down of the idea of "natural rate of interest".  The first graph below shows how far real interest rates have fluctuated from the "mythical" natural rate of interest over half a century.  The second graph shows that household savings shows no correlation to real interest rates, which also belies that there is a prefered "natural" rate of interest.  Montier also shows the empirical evidence that the neoclassical model of fiscal deficits "crowding out" private investment is not only not supported, but is actually contradicted.  In his conclusion he describes the “equilibrium/natural/neutral” rate of interest followed by central bankers around the world as a "make-believe concept with no foundation in the way our financial world really works".   He calls the activities of central bankers "a massive exercise in navel gazing!"   He says that we are victims of "the world’s greatest con: that monetary policy matters".  One of many key passages:

Lest you think I am being unduly harsh on the world’s poor central bankers, let me turn to the wider idolatry of interest rates that seems to characterise the world in which we live. There seems to be a perception that central bankers are gods (or at the very least minor deities in some twisted economic pantheon). Coupled with this deification of central bankers is a faith that interest rates are a panacea. Whatever the problem, interest rates can solve it. Inflation too high, simply raise interest rates. Economy too weak, then lower interest rates. A bubble bursts, then slash interest rates, etc., etc. John Kenneth Galbraith poetically described this belief as “…our most prestigious form of fraud, our most elegant escape from reality… The difficulty is that this highly plausible, wholly agreeable process exists only in well-established economic belief and not in real life.”

ratess.real.natural.1961.2012

interest.rates.household.savings 

  • The Idolatry of Interest Rates Part II: Financial Heresy (GMO White Paper)  James Montier argues that the absence of a natural rate of interest creates problems with asset pricing models because market estimates of future discount rates are quite variable.  For example, when asked by the author a group of about 70 investment  professionals gave a range of estimates for cash interest rates at the end of 7 years from that date, the average was 0.8% but the range of estimates went from -20 bps and +180 bps (+/- 125%).  And the average at GMO differed greatly from other estimates.

future.cash.interest.rates.estimates

  • The Idolatry Companion: Potential Utility in an Equity Risk Premium Framework (GMO White Paper) Scroll down to the end of the previous article to find this "rebuttal" (of a sort) by Ben Inkler.  The future discount rate variability is an uncertainty in the equity risk premium calculated for an asset pricing model.  But Inkler suggests that uncertainty can be diminished over the "long-run" by using long-term trends and suitable moving averages for future projections.  He draws on the work of Robert Shiller for illustration.  (But Inkler does have caution:  "ignoring James’ important challenge to the ERP framework would be more dangerous" [than proceding blindly with classical CAPM - capital asset pricing models].)

stock.returns.1901.2014bond.yields.real.1901.2015equity.risk.premium.1901.2015


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