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What We Read Today 01 September 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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Every day most of this column ("What We Read Today") is available only to GEI members.

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Topics today include:

  • IRS Releases 2014 Obamacare Records

  • Index Investing is Worse then Marxism

  • Worst and Best States for Student Loan Debt

  • Things Went Better for Labor During Globalization a Century Ago

  • Oil Headed Down

  • Global Economy Turning Japanese

  • Is GDP Meaningful for an Aging Population

  • First Florida Hurricane in 11 Years

  • The High Cost of Extractive Finance

  • Eurozone is Stagnant

  • Trump - Peña Nieto Feud

  • And More

Articles about events, conflicts and disease around the world

Global

  • Oil Heads for Biggest Weekly Drop in 8-Months Amid Ample Supply (Bloomberg)  Oil tumbled, heading for the biggest weekly decline in eight months, after U.S. government data showed crude supplies at the highest seasonal level in more than 20 years.  Futures have dropped 9.3% in four days in New York. Supplies rose by 2.28 million barrels last week, according to the Energy Information Administration. Russian Energy Minister Alexander Novak said he sees no need for oil-producing nations to impose an output cap given current price levels. The comments come before OPEC members and other oil producers meet in Algiers later this month.

  • This chart will scare anyone worried about the global economy turning Japanese (Business Insider)  This chart from UBS shows that many of the world's major economic players are staring at the beginning of the same aging demographic trend that Japan, China and Germany have already started.  The U.S. and all of Europe are also at the peak of working age populations and the total for the world will be there within a few years, if not already there, as well.  Econintersect:  Age demographics are a significant factor in GDP growth.  The 'prosperity' of individual countries may be less determined by GDP growth as time moves forward and more by how well each economy accommodates its aging population. 

Click for larger image.
aging.world.1950.2100

U.S.

  • Here’s Why Americans Are Mad as Hell at Wall Street and Washington (Pam Martens and Russ Martens, Wall Street on Parade)  The Martens have contributed to GEI.  Here they describe the "insidiously corrupt financial system" in the United States known as Wall Street. It’s a system that now operates as an institutionalized wealth transfer mechanism that is hollowing out the middle class, leaving one of every five children in our nation living in poverty, while funneling the plunder to the top one-tenth of one percent.  They write:

Tens of millions of Americans clearly understand that an entrenched system of corruption such as this, perpetuated through a revolving door between Wall Street and Washington, while enshrined by a political campaign finance system that recycles a portion of the plunder to ensure greater plunders, will inevitably leave the nation’s economy in tatters — again. That’s because systemic corruption and legalized bribery within the financial arteries of the nation can only create grossly perverse economic outcomes.

The actual role of Wall Street is to fairly and efficiently allocate capital to maximize positive economic outcomes for the nation. Under the current model, Wall Street is focused solely on maximizing profits in any manner possible, including fraud and collusion, to maximize personal enrichment. When Senator Bernie Sanders said during his campaign stops and a presidential debate that “the business model of Wall Street is fraud,” there was a long, substantive archive of facts to back up that assertion.

  • Overcharged: The High Cost of High Finance (Roosevelt Institute)  Econintersect:  This is a review of the cost to the American economy of the extractive financial system which today operates with only the objective of maximizing financial profits without being held accountable for how that diminishes the performance of the 'real economy'.  Here is the summary (see full article - Scribd presentation):

A healthy financial system is one that channels finance to productive investment, helps families save for and finance big expenses such as higher education and retirement, provides products such as insurance to help reduce risk, creates sufficient amounts of useful liquidity, runs an efficient payments mechanism, and generates financial innovations to do all these useful things more cheaply and effectively. All of these functions are crucial to a stable and productive market economy. But after decades of deregulation, the current U.S. financial system has evolved into a highly speculative system that has failed rather spectacularly at performing these critical tasks.

What has this flawed financial system cost the U.S. economy? How much have American families, taxpayers, and businesses been “overcharged” as a result of these questionable financial activities? In this report, we estimate these costs by analyzing three components: (1) rents, or excess profits; (2) misallocation costs, or the price of diverting resources away from non-financial activities; and (3) crisis costs, meaning the cost of the 2008 financial crisis. Adding these together, we estimate that the financial system will impose an excess cost of as much as $22.7 trillion between 1990 and 2023, making finance in its current form a net drag on the American economy.

overcharged

EU

  • Eurozone Report (Walter Kurtz, Sober Look, The Daily Shot)  Consumer inflation continues much below target while unemployment is still stuck above 10%.

ez.consumer.inflation.2006.2016.aug

ez.unemployment.2006.2016.aug

Germany

  • Germany goes to EU with accusation of Fiat emissions cheating (CNBC)  Germany's Transport Ministry has asked the European Commission to investigate exhaust emissions of Fiat Chrysler vehicles for potential illegal manipulation devices, German government documents showed on Thursday.  Germany's motor vehicle authority KBA began testing the vehicles of several manufacturers, including Fiat, after Volkswagen's admission in September last year that it had cheated emissions tests with motor-management software.  The direct approach to the European Union executive comes after the German transport ministry raised concerns over Fiat vehicles with Italian authorities earlier this year and a subsequent rejection by Italian authorities of claims that Fiat and Chrysler vehicles used illegal exhaust manipulation devices.

Russia

  • U.S. imposes sanctions on 'Putin's bridge' to Crimea (Reuters)  Companies building a multi-billion dollar bridge to link the Russian mainland with annexed Crimea, a project close to the heart President Vladimir Putin, were targeted by the United States in an updated sanctions blacklist on Thursday.  The U.S. Department of the Treasury added dozens of people and companies to the list, first introduced after Russia annexed the Crimean peninsula from Ukraine in 2014 and expanded over its support for separatist rebels in the east of the country.

Mexico

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

The Internal Revenue Service says 3.4 million taxpayers reported receiving a total of $12 billion in Affordable Care Act advance premium tax credit subsidies for 2014, when the subsidy program took effect.

The IRS found that 1.5 million taxpayers said they had received too little premium subsidy money. They asked for a total of $1 billion in extra tax credit money, or an average of about $670 each.

Another 1.8 million taxpayers said they had received about $1.4 billion in excess premium subsidy helped. They said they owed the IRS an average of about $790 each.

Back in July 2015, IRS officials said, based on preliminary filing data, that filers who reported they should be getting extra money were seeking an average of about $600 in extra subsidy money. The filers who owed money said they owed the IRS an average of about $800 in extra payments.

About 8.1 million taxpayers said they owed ACA "individual shared responsibility payments," or penalties for lacking what the IRS classifies as solid health coverage for part or all of the year. They said they owed the government a total of $1.7 billion in penalty payments, or about $210 each.

  • Bernstein: passive investing is worse than Marxism (Wealth Manager)  Demand for passive strategies has rocketed recently, due in part to disappointment with performance of active funds and their fees.  With investors looking to keep costs down and protect returns, cheaper alternatives such as exchange-trade funds (ETFs) have seen a marked increase in inflows.  In the note titled The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism, Bernstein’s head of global quantitative and European equity strategy Inigo Fraser-Jenkins suggests the rise of passive management could have serious consequences for capitalism.  Fraser-Jenkins believes this relentless growth in passive investing is an inefficient allocation of capital, even worse than central planning allocation of capital. Here is a summary of his argument:

 ‘Active investment decisions form a crucial part of the capital allocation process in an economy and as such there is a clear and distinct social worth in their aggregate action.  

A possible alternative is a Marxist economy where the capital allocation is planned, such a system is perfectly viable but just less effective.

 However, a supposedly capitalist economy with no active investment — where passive management is the only capital allocation process — is, in our opinion, worse than either of these alternatives.  

The commonality between both active market management and the Marxist approach is that in both cases there are a set of agents trying – at least in principle – to optimise the flows of capital in the real economy. It is just such a feature that is lacking in passive investment management.’

  • 10 states with the most student loan debt (Employee Benefit News)  In order to identify the best and worst states for student-loan debtors, WalletHub, a personal finance site, compared the 50 states and the District of Columbia on nine key metrics, including “average student debt,” “unemployment rate for people aged 25 to 34” and “percentage of students with past-due loan balances” to average a state population's overall score.  In addition, student loan indebtedness was calculated using five of those metrics, including "student debt as a percentage of income" as well as the "percentage of student loans in past-due or default status."   The 10th worst state is Ohio and number one is District of Columbia.  Click on slide show for the other 8.  (Only one state is west of the Mississippi River and only one is in the south).

  • 10 best states for student loan debt (Employee Benefit News)  Using the same methodology as in the preceding article, WalletHub, a personal finance site, has ranked the tops states for having the smallest problems with studnt loans.  The best state is Utah and the 10th best is New Mexico.  Only one state is east of the Mississippi River.  Click here for list of all 10 states.

  • New Perspectives on the First Wave of Globalization (NBER)  The author discusses the first "Great Wave of Globalization," during the late 19th and early 20th centuries, witnessed a historically unprecedented rise in spatial economic integration. Between 1850 and 1913, transportation costs plummeted, information flows accelerated, tariffs fell, trade treaties such as free trade agreements with unconditional most-favored-nation clauses and treaty ports proliferated, and empires expanded. In addition, a set of global financial intermediaries flourished, migrants flowed to previously unsettled regions in unprecedented numbers, and economic and political stability was largely the norm.  Unsurprisingly, many commodity prices converged and the export share of total production increased dramatically, doubling or tripling in many small, open economies between 1850 and 1914. In addition, new markets opened up to international trade and previously unavailable varieties of goods became accessible.  One thing that happened during this earlier globalization that did not in the current era, at least in the developed countries, labor standards rose even as trading costs fell.


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