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What We Read Today 12 October 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:

  • Fed Vice Chair Stanley Fisher is Waiting for Godot

  • Stanley Fisher is Waiting for the 'Confidence Fairy'

  • Nightmare Began When She Paid Off Her Credit Card

  • Bank of America Warns Stocks Almost as Expensive as in the Tech Bubble

  • Obamacare Death Spiral

  • Business Bankruptcies Soar

  • Falling Chinese Oil Production Could Kill OPEC Deal

  • There Could be an Oil Price Crash Coming

  • Huge U.S. Oil Surplus could be Phony

  • Fed Minutes Show Divisions

  • John Stumpf to Leave Wells Fargo Immediately

  • Scott Adams Unendorses Trump, Endorses Johnson, with Whom He 'Can Identify'.

  • Trump Trade Policy and Recession

  • Turkey Blames U.S. and Iran for Driving a Wedge Between Ankara and Baghdad

  • Why Rouhani will be Reelected in Iran

  • Russia has New Tools for Confronting the West

  • And More

Articles about events, conflicts and disease around the world

Global

  • Could Falling Chinese Oil Production Kill The OPEC Deal? (Oil Price)  Dwindling Chinese oil production could lead the Organization of Petroleum Exporting Countries (OPEC) to delay a freeze deal further, as the Asian giant ramps up its own imports to make up for lost domestic supply.  China, which was ranked as the fifth-largest oil producer in the world during 2015, reported a production rate of 3.87 million barrels per day in August—the lowest since December 2009, and the second consecutive month of sharp declines, according to Forbes.  Markets will have to reach an oil price of $60 a barrel before Chinese energy companies can grow production operations back to previous highs, analysts speaking to Bloomberg have said.

  • The Coming Oil Price Crash (Gail Tverberg, Oil Price)  GT has contributed to GEI.  Here Gail explains why oil consumption growth is headed into the tank - GDP growth is slowing.

enrgy.gdp.1972.2015

U.S.

  • Fed Minutes Show Officials Expect to Raise Rates ‘Relatively Soon’ (The Wall Street Journal)  Federal Reserve officials meeting in September laid the groundwork to raise short-term interest rates “relatively soon”, according to minutes, although they struggled to reconcile internal divisions over the timing of the next rate move.  See GEI for complete analysis.

  • Wells Fargo CEO John Stumpf to retire (The Charlotte Observer)  John Stumpf is leaving Wells Farge immediately.  Wells Fargo Chairman and CEO John Stumpf is stepping down from the bank he has led for nearly a decade, following intense scrutiny over a fake accounts scandal that erupted last month.  San Francisco-based Wells said Wednesday that Stumpf informed the company’s board of directors that he is retiring from the bank and its board immediately. The bank’s board elected President and Chief Operating Officer Tim Sloan to replace him and named him to the board.

  • Scandal Poker - Trump Vs. Clinton (Scott Adams Blog)  The Dilbert creator has unendorsed Trump and endorsed Johnson.  He offers a list of (not quite accurately related) scandal conspiracy theories for Clinton and Trump before concluding:

I now endorse Gary Johnson. He’s allegedly a stoner who doesn’t know much about Aleppo. I call that relatable. A vote for Clinton or Trump is support for an alleged abuser of women. I don’t need that on my brand.

  • The Billion Barrel Oil Swindle: 80% Of U.S. Oil Reserves Are Unaccounted-For (Oil Pro)  U.S. crude oil storage is filling up with unaccounted-for oil. There is a lot more oil in storage than the amount that can be accounted for by domestic production and imports.  That’s a big problem since oil prices move up or down based on the U.S. crude oil storage report. Oil stocks in inventory represent surplus supply. Increasing or decreasing inventory levels generally push prices lower or higher because they indicate trends toward longer term over-supply or under-supply.  Inventory levels have reached record highs since the oil-price collapse in 2014. This surplus supply is a major factor keeping oil prices low.  Current inventories are 45 million barrels higher than 2015 levels, which were more than 100 million barrels higher than the average from 2010 through 2014 (Figure 1). Until the present surplus is reduced by almost 150 million barrels down to the 2010-2014 average, there is little technical possibility of a sustained oil-price recovery.  But, after extensive analysis detailed here, the author thinks the inventory numbers are false:

The truth—however improbable—is that inventories are probably much lower than what is reported.

  • Republicans Endorse, Unendorse And Then Re-Endorse Donald Trump (The Huffington Post)  Multiple Republicans who called for Donald Trump to step down as the Republican presidential nominee over the weekend are now saying they will still vote for him.  In an impressive bit of rhetorical gymnastics, some are also saying that they never technically un-endorsed Trump in the first place ― even though they all said that he should be replaced by his running mate Mike Pence as the Republican nominee for president.

  • History Shows Trump’s Trade Policy Is a Recipe for Recession (Benn Steil and Emma Smith, Council on Foreign Relations)  Benn Steil and Emma Smith have contributed to GEI.  

The central theme of Donald Trump’s economic policy is trade.  He promises to slash America’s trade deficit by tearing up international agreements and imposing massive new tariffs on imports from China (45%) and Mexico (35%).  By cutting the trade deficit from $500 billion to zero, according to his senior economic advisers, $1.74 trillion in new tax revenue will accrue to the Treasury over the next decade.  Trump will use this massive windfall to fund two-thirds of his proposed tax cuts.  If true, this will indeed go some way toward Making America Great Again.

But unfortunately it isn’t—not by a long shot.  If produced by a Macro 101 student, this sort of analysis would send his professor into paroxysms of red-pen rage.

Trade deficits, you see, do not just disappear, and tax revenues soar, because you block imports.  A trade deficit results from a deficit of savings relative to investment.  If savings and investment don’t budge after imports fall—which they don’t in the Trump analysis—then exports must fall by an equivalent amount.  The mechanism by which this would happen is simple.  The lower demand for non-U.S. currency created by the import cut pushes up the value of  the dollar, which makes U.S. exports more expensive and imports cheaper.  So imports rise and exports fall.  The trade deficit remains the same.

savings.investments.trade.deficits.1973.2016

Turkey

  • Turks blame US, Iran for encouraging Baghdad against Ankara (Al Monitor)  Iraqi Prime Minister Haider al-Abadi’s demand that Turkish troops stationed in the Bashiqa camp near Mosul leave Iraq has riled Turks of all shades, regardless of whether they support President Recep Tayyip Erdogan and the ruling Justice and Development Party or not.  The blame for Baghdad’s position, however, is being placed on the United States, which is said to be inciting Abadi against Turkey. Iran is also accused of using the Abadi government to keep Turkey away from a Mosul operation.  According to some, the aim is to help anti-Turkish terrorist groups and ensure that oil from northern Iraq does not flow into Turkey, while others argue that there is an effort to put up a Shiite belt around Turkey.

Iran

  • Five reasons Rouhani will be president for another term (Al Monitor)   Former Iranian President Mahmoud Ahmadinejad’s attempt at a political comeback came to an abrupt end following his reported Aug. 30 meeting with the supreme leader. Ayatollah Ali Khamenei reportedly told Ahmadinejad that his provincial tours in recent months were inappropriate and that his candidacy in the May 2017 presidential election would be divisive, thus effectively barring him from taking part in the vote.


Russia

  • Russia's New Tools for Confronting the West (Council on Foreign Relations)  In the last two years, Russia has demonstrated its return to an assertive foreign policy by successful military interventions in Ukraine and Syria. The capabilities it employed to do so surprised the West, despite being well advertised in advance and their development described in detail by the Russia-watching community in Western nations.  Two specific tools for exercising Russian power demand close study: the Armed Forces of the Russian Federation; and the state’s capacity for information warfare. In both of these fields, Russia’s capabilities have developed rapidly in recent years to match its persistent intentions:

• The distinctive Russian approach to operations in Ukraine gave rise to an impression among some observers that its military had employed fundamentally new concepts of armed conflict. The widespread adoption of phrases such as ‘hybrid warfare’ and ‘Gerasimov doctrine’ reinforced this perception of novelty, and was indicative of a search for ways to conceptualize – and make sense of – a Russian approach to conflict that the West found at first sight unfamiliar.

• Nevertheless, the techniques and methods displayed by Russia in Ukraine have roots in traditional Soviet approaches. Since the end of the Cold War, Russia’s military academics have displayed an unbroken and consistently developing train of thought on the changing nature of conflict and how to prevail in it, including – but certainly not limited to – the successful application of military power. As a result, despite modern technological enablers, Russia’s intentions and actions throughout the Ukraine conflict have been recognizable from previous decades of study of the threat to the West from the Soviet Union. Today, as in the past, Western planners and policy-makers must consider and plan not only for the potential threat of military attack by Russia, but also for the actual threat of Moscow’s ongoing subversion, destabilization and ‘active measures’. 

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

  • Fed Vice Chair Fischer Admits Fed is Waiting for Godot (Wolf Street)  In his keynote speech on the usual suspects of central-bank topics at the Institute of International Finance’s big shindig in Washington DC last Friday, Fed Vice Chair Stanley Fischer nevertheless managed to develop a new theory for a fourth Fed mandate.  This new mandate would come on top of the third mandate: inflating asset bubbles at all costs (unlimited asset price inflation).  See graph below. The other two mandates are “full employment” (whatever that means) and “price stability,” which is ironically defined as consumer price inflation, the way the Fed counts it, of at the moment 2%, and a lot more in most people’s real-life experience.  The fourth mandate, it turns out is to wait for Godot, which in Fisher's case, is (from MarketWatch):

"Animal spirits aren’t there – people aren’t excited about growth prospects.”

“Confidence has to be turned on for people to want to invest and we’re waiting to see that happen.  It will happen at some point. But precisely when is unknown.

  • As ObamaCare Death Spiral Continues, Flailing Institutions Attempt to Cope (Lambert Strether, Naked Capitalism)  LS has contributed to GEI.  Lambert tells a detailed story about the "competition fairy".  (Econintersect:  Obamacare was modified in drafting to accommodate Republican features, but then no Republicans voted for it.  One of the key provisions removed was "public option" to provide coverage for those that insurance companies could not without losing money.  The argument essentially was that no insurance company could compete with the public option.  Of course, the law could have been written so that those excluded from insurance coverage before the law (pre-existing conditions, for example) could obtain subsidized public option coverage provided they had maintained insurance coverage before they needed it.  That would have maintained profitability for insurance companies who would have provided insurance for the healthy while covering "the halt and the lame" with the public option.)  Bottom line:  The public option could have been established to cover only those who maintained private insurance (or Medicaid coverage) prior to falling into the high-cost category.)  Here is Lambert's conclusion (after a very through essay): 

Recall that ObamaCare is putatively universal and depends for its success on [genuflects] competition. We’ve seen that ObamaCare is not universal for people who, because of ObamaCare’s death spiral, have the misfortune to live in Pain City, with zero carriers (and a resulting insane arithmetical calculation, topped off with an insane bureaucratic process). We’ve seen that it should be possible to create competition through the MSP program — accepting for the sake of the argument that the neoliberal faith in markets is sane — in counties with one carrier, but that the administration butchered the MSP implementation. Meanwhile, in Minnesota, we see one state propose to allow insurers to limit enrollments, which threatens a reversion to pre-ObamaCare underwriting practices, also insane. Finally, we see that the brainiacs in the administration propose to nudge — by which I mean shove — a million or so people into new plans not of their choosing when their old plans are cancelled.

Wouldn’t it make a lot more sense to move to simple, rugged, and proven single payer? I mean, if our elites were sane?

  • The Great Debt Unwind: Business Bankruptcies Soar 38% (Wolf Street)  Something funny happened on the way to the bank: In August, commercial and industrial loans outstanding at all banks in the US fell for the first time month-to-month since October 2010, which had marked the end of the collapse of credit during the Financial Crisis.

In October 2008, the absolute peak of the prior credit bubble, there were $1.59 trillion commercial and industrial loans outstanding. As the Great Recession chewed into the economy, C&I loans plunged. Many of them were cleansed from bank balance sheets via charge-offs. But then the Fed decided what the US needed was more debt to fix the problem of too much debt, thus kicking off what would become the greatest credit bubble in US history. By July 2016, C&I loans had surged to $2.064 trillion, 30% above their prior bubble peak.

But in August, something stopped working: C&I loans actually fell 0.3% to $2.058 trillion, according to the Federal Reserve Board of Governors. That translates into an annualized decline of 3.8%, after an uninterrupted six-year spree of often double-digit annualized increases. Note that first month-to-month dip since October 2010:


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