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:
Innovation Has Enemies
Fund Mangers Think Global Fiscal Policy is Too Tight
Are the Fed’s Interest Rate Policies Self-Defeating?
Is the Stock Market Rally About Over?
End of Deflation in China
Ford's Autonomous Car
Did Clinton's State Department Policies Lead to ISIS?
America's First Offshore Wind Farm
ECB Thinks Eurozone Economy 'Still Intact' Post Brexit
U.S., Russia and Syria
Will India's GST Boost the Economy?
Bank of Japan Still Indecisive
China Considers Economic Retaliation Against South Korea
China Wants the Rest of the World to Grow
Articles about events, conflicts and disease around the world
There's No Such Thing as an Economic Miracle (Bloomberg) Tyler Cowen says that "growth miracles, while they make for good press, are overrated". Econintersect: Cowen doesn't use the analogy of the parable of the tortoise and the hare, but his message is that, for the world's most successful economies, slow and steady wins the race for success.
The end of deflation in China will be felt around the world (Financial Times) China's wholesale inflation (also called factory gate inflation) has been negative (that's called deflation) for the past 50 months, but it appears to be shinking back toward zero. According to this article that will remove one of the legs under global deflationary pressures as commodities and Chinese exports will not continue falling.
Ford Plans Leap From Driver’s Seat With Autonomous Car by 2021 (Bloomberg) Ford Motor Co., which put the world on wheels a century ago, is now taking the driver out of the driver’s seat. The company said it plans to have a fully autonomous vehicle -- no steering wheel, no gas or brake pedals -- available by 2021 for ride-hailing services.
As ISIS Brewed in Iraq, Clinton’s State Department Cut Eyes and Ears on the Ground (ProPublica) An investigation by ProPublica and The Washington Post finds that Secretary of State Clinton initially pressed to keep civilian programs and listening posts after the U.S. troop pullout in 2011, but then her State Department scrapped or slashed them at the behest of the White House and Congress. The reasons for the pressure? The Iraqi government of Iraqi Prime Minister Nouri al-Maliki objected and Congress wanted to save money. The situation is a little more complex than described by Republican presidential candidate Donald Trump on Monday:
“The rise of ISIS is the direct result of policy decisions made by President Obama and Secretary of State Clinton.”
America's First Offshore Wind Farm Is Nearly Ready (Bloomberg) Deepwater Wind LLC is on the verge of completing the first offshore wind farm in U.S. waters, a milestone for an industry that has struggled for a more than decade to build in North America. Workers have installed blades on four of the five 589-foot turbines at the site off the coast of Rhode Island and construction may be complete as early as this week, according to Chief Executive Officer Jeff Grybowski. The 30-megawatt, $300 million project is expected to begin commercial operation in early November.
ECB’s Outlook on Eurozone Economy ‘Still Intact’ After Brexit Vote (The Wall Street Journal) European Central Bank policy makers concluded at their July meeting that the U.K.’s vote to leave the European Union won’t derail the eurozone’s economic recovery, Germany’s Bundesbank said Monday. The Bundesbank wrote in its monthly report that the ECB’s 25-member governing council:
“... came to the conclusion that the base scenario of a continuing economic recovery and gradually rising inflation rates in the eurozone is still intact.”
Putin hints at war in Ukraine but may be seeking diplomatic edge (Reuters) Ukraine says it thinks Vladimir Putin is planning a new invasion, and it's not hard to see why: the Russian leader has built up troops on its border and resumed the hostile rhetoric that preceded his annexation of Crimea two years ago. But despite appearances, some experts say Putin is more likely seeking advantage through diplomacy than on the battlefield, at least this time around. Andrey Kortunov, director general of the Russian International Affairs Council, a Moscow-based foreign policy think tank close to the Russian Foreign Ministry, told Reuters:
"It's about sanctions."
GST to strengthen growth, make economy more predictable: PM Narendra Modi (The Economic Times) Prime Minister Narendra Modi today said the Goods and Services Tax (GST), which will replace a raft of different central and state levies, will strengthen growth efforts and make economy more predictable. Modi credited all political parties for passing a Constitutional amendment in the just concluded Monsoon Session of Parliament to bring a single unified value added tax system to turn the country into world's biggest single market. See also next article.
The most important factor for its impact and efficacy will be the GST tax rate. The Arvind Subramanian committee estimated revenue neutral rate of 15-15.5% and recommended a three-tier tax structure of 12% for essential items, 40% for luxury items and 17-18% being standard rate for most items.
Bank of Japan money target up for debate in policy review: sources (Reuters) The Bank of Japan's policy review could put up for debate its target for expanding base money through massive asset purchases, sources say, but the challenge would be to avoid spooking bond markets used to years of unprecedented buying. The BOJ's announcement last month of a thorough review of its policy and its effects triggered a sharp bond sell-off as investors feared the central bank, wary of its dwindling policy tools, might lean toward reducing its government bond purchases. It is currently buying roughly 110-120 trillion yen in bonds each year to meet its pledge to expand base money - or cash and deposits in circulation - by an annual 80 trillion yen ($790 billion). But after initial successes in the asset-buying program, which is aimed at ending two decades of deflationary pressure, prices are falling again.
China to consider economic retaliation against S. Korea over THAAD (Pulse) The Chinese government is considering steps that would limit the imports and investment to South Korea as a part of possible retaliation against Seoul’s decision to deploy the U.S. Terminal High Altitude Area Defense (THAAD) missile defend system on its soil. China is reviewing measures that would restrict imports of Korean goods and services and also suspend Chinese firms’ investment deals in Korea, according to Bloomberg News on Friday. It, based on multiple sources, projected Korean electronic car battery makers Samsung SDI Co. and LG Chem Ltd. would be excluded from the Chinese government’s list of suppliers meeting its technical standards.
China working on growth initiative for economy summit (Associated Press, Tulsa World) Chinese officials say Beijing will propose a joint initiative to boost global growth at next month's meeting of Group of 20 major economies amid rising protectionist sentiment in the United States and Europe. Finance and foreign affairs officials said Monday the initiative will call for spreading the benefits of economic development, which might shore up political support for free trade. The Sept. 4-5 meeting in the eastern Chinese city of Hangzhou comes amid an unusually weak global economic recovery and growing popularity of U.S. and European politicians who advocate protection for local industries. At a news conference, the Chinese officials said Beijing's G20 initiative will include proposals to strengthen the global financial system and promote technological innovation.
Other Scientific, Health, Political, Economics and Business Items of Note - plus Miscellanea
Innovation and Its Enemies (Matt Ridley Online) Hat tip to John O'Donnell. Why do many "new things" meet so much opposition? Here is an excerpt from Ridley:
Innovation is the source of virtually all prosperity. It is the reason the average person now lives longer, feeds better, travels farther, is better entertained and sees more children survive than even a monarch did four centuries ago. A glance back through history shows that innovation nearly always does more good than harm.
So why is innovation so fiercely resisted? Opposition to “fracking” (the novelty is not hydraulic fracturing, which has been happening for decades in Dorset, but shale gas extraction; the opponents like using a word with f and k in it) is largely irrational. Like the claim that the Liverpool to Manchester railway would cause horses to abort their foals, it is based on myth, flying in the face of the evidence that shale gas can provide energy more cleanly than coal, more cheaply than nuclear and more reliably than wind. Yet the opponents, backed by the giant budgets and PR machines of the big environmental pressure groups, have poisoned shale gas’s reputation here already.
This is nothing new. “When a new invention is first propounded,” said William Petty in 1679, “in the beginning every man objects and the poor inventor runs the gauntloop of all petulant wits.” As Calestous Juma, of Harvard Kennedy School, recounts in a fascinating new book called Innovation and Its Enemies, even coffee and margarine were fiercely rejected at first.
The idea that lower interest rates raise demand is based on the view that households attempt to smooth their consumption over time. This assumed relationship has little empirical support and there are good reasons, particularly when rates are extremely low or negative, to doubt it. High existing debt levels, or poor creditworthiness, are more realistic constraints on spending than higher interest rates.
And what of savers? Lower rates have a depressing effect on household incomes, through reduced interest on savings and pensions. It is likely that in relatively wealthy economies — with rising healthcare costs, increasing longevity and uncertainty over pension funding — households respond to lower income on their savings by trying to save more. … The relationship of spending to lower interest rates may well be the reverse of that assumed by policymakers. If consumers do not respond to lower rates by spending more, this places an additional onus on the corporate sector.
Technically Speaking: A Bull Market In Complacency (Lance Roberts, Real Investment Advice) LR is a weekly contributor to GEI. After the recent 10% advance, how much more is there left to go? The bad news is that recent new highs were occurring on a rapid decline in volume as shown in the chart below.
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