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What We Read Today 01 March 2017

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:

  • The Worst Commutes in the World

  • Fact-Checking Trump's Speech

  • U.S. Population by Citizenship Status

  • Nearly 1/2 of U.S. Non-Citizen Residents and Undocumented

  • Viewers Strongly Approve of Trump's Speech to Congress

  • U.S. Doesn't Have Enough Workers for Trump's Infrastructure Plan

  • Who Actually Wanted the Mission that Killed Navy Seal Owens? 

  • What was Accomplished by the Mission that Killed Navy Seal Owens?

  • House of Lords Notes to Protect EU Residents in the UK - May Vows to Overturn

  • Brits in Germany are Applying for Citizenship There

  • What is Driving Australia's Housing Boom?

  • What is "Negative Gearing"?

  • Should Central Banks Offer Accounts to Everyone?

  • TBTF Banks Receive Huge Subsidies

  • Central Banks as Public Banks

  • And More

Articles about events, conflicts and disease around the world

Global

  • Cities with the world's most painful commutes (MSN News)  TomTom, the Dutch company known for its navigation and mapping products, has released its annual traffic index, detailing global city traffic congestion. Defining congestion level as the "increase in overall traffic times when compared to a free flow situation (an uncongested situation)",  each city was given a percentage score out of 100. This is a slide show the 30 most congested cities of the world.  Fourteen of the 30 cities are in Asia (10 in China), 7 in Europe, 4 in South America and 3 in North America.  The worst commute in the world?  Mexico City. 

U.S.

  • Fact-checking President Trump’s address to Congress (The Washington Post)  An address to Congress is such an important speech that presidents generally are careful not to stretch the truth. The “16 words” in George W. Bush’s 2003 State of the Union address that falsely claimed Iraq’s Saddam Hussein sought uranium from Africa led to significant turmoil in the administration, including the criminal conviction of a top aide.  President Trump’s maiden address to Congress was notable because it was filled with numerous inaccuracies. In fact, many of the president’s false claims are old favorites that he trots out on a regular, almost daily basis. This article goes through the roundup of 13 of the more notable claims, in the order in which the president made them.  Click on title to review.  Article shows an interesting graphic (below) which does not specify the relative magnitudes of "total non-citizen population" and "unauthorized aliens".  See next two articles, which show unauthorized aliens are almost half of the total non-citizen population..

non.citizen.crime.us

  • Overall Number of U.S. Unauthorized Immigrants Holds Steady Since 2009 (Pew Research Center)  The U.S. unauthorized immigrant population – 11.1 million in 2014 – has stabilized since the end of the Great Recession, as the number from Mexico declined but the total from other regions of the world increased, according to new Pew Research Center estimates based on government data.

  • Viewers strongly approve of Trump's speech to Congress (CBS News)   Viewers nationwide strongly approved of President Trump’s speech Tuesday night, with many Democrats joining Republicans in calling it “presidential” and positive in tone. Republicans and Independents found it “unifying,” though Democrats were slower to come around on that measure.  The President gained support for his policy plans among viewers: Interviewed before and after the address, they came away from it more positive on his ideas for the economy, immigration, terrorism, crime and Obamacare.  As is often the case in addresses to Congress, those who watched were more likely to be from the president’s party – in this case, Republicans. And they described a president they felt was keeping campaign promises and offering an “inspiring” message.

optimism.after.speech.2017.feb.28

approval.speech.2017.feb.28

  • Math Will Kill Trump's Infrastructure Plan (Bloomberg)  Hat tip to Patrick W. Watson.  In his address to Congress on Tuesday, President Donald Trump once again brought up his support for a large infrastructure package. And there’s good reason for this: It’s not nearly as polarizing as most other parts of his agenda and would stimulate economic growth in a way that would benefit blue-collar workers who were key to his election. But like much of his agenda, it’s short on details, and the labor-market math doesn’t add up.  Here’s the napkin version. The trillion-dollar package being discussed is understood to be $100 billion of spending per year for 10 years. Leave aside the fact that infrastructure spending is notoriously messy and slow, as environmental delays and other project-specific concerns make it hard to spend the money as fast as a policymaker or economist would like. The labor question alone shows that this vision is impossible.  This review concludes that between 400,000 and 570,000 additional workers in construction are needed for a program such as the president proposes and there are simply not that many suitable employees available.  And stepped up deportations would remove some of the estimated 1.1 million construction workers in the U.S. who are undocumented.  The president has proposed conflicting objectives.

  • Tears of Carryn Owens, widowed by a mission that no one wanted (The Guardian)  Obama had considered the Yemen raid unnecessary - and questions remain over whether Trump or generals pushed for it, leading to death of navy Seal Chief Petty Officer William “Ryan” Owens.  There is also debate whether any useful information was obtained by the raid:

Trump said in his speech that he was quoting the defense secretary, James Mattis, his chief bridge to the military, in saying: “Ryan was a part of a highly successful raid that generated large amounts of vital intelligence that will lead to many more victories in the future against our enemies.”

Yet recent reporting has called that into question. According to NBC the raid has thus far yielded no significant intelligence. NBC also suggested an unacknowledged objective of the raid was to kill or capture al-Qaida fighters or leaders.

UK

  • Government vows to overturn EU citizens vote after Lords defeat (The Guardian)  Theresa May’s government has vowed to overturn a demand by the House of Lords to guarantee the rights of EU citizens living in the UK within three months of article 50 being triggered.  Ministers were said to “disappointed” by a heavy defeat in which peers voted 358 to 256 in favour of amending the Brexit bill, but made clear that their position would not change on the issue.  Seven Conservatives including the former cabinet minister Douglas Hogg lined up with the Labour party, Liberal Democrats and crossbenchers to demand formal reassurances for more than 3 million Europeans already resident in Britain.  There will now be intense pressure on Conservative backbench MPs to follow suit when the bill returns to the Commons for another vote in just under a fortnight.  A government source told The Guardian that they took the issue of securing the rights of EU citizens very seriously, but said they were determined to pass a “straightforward, simple bill”.  The source said:

“The intention is to seek to overturn this in the House of Commons.” 

Germany

  • The Brits hurrying to become German citizens (BBC News)  The Brexit debate in the UK is focusing on the rights of EU migrants in the country, among them about 300,000 Germans. Many people are worried about what will happen to them after Brexit. But how are the 100,000 Brits in Germany feeling? The BBC's Damien McGuinness says many are hurrying to apply for citizenship.

Australia

  • What's Driving Australia's Property Boom: QuickTake Q&A (Bloomberg)  House prices in Australia’s biggest cities are on a tear. In the financial capital, Sydney, they’ve risen 73% over five years, ranking it second only to Hong Kong as the world’s least affordable housing market. Melbourne prices are up 52%. As in global cities from London to Vancouver, the property boom has increasingly pushed the traditional norm of homeownership beyond the reach of average earners. Residential property accounts for 40%  to 60% of loans by the major banks, making house prices a matter not just of politics but financial stability.  While foreign buyers (especially Chinese) have been mentioned as driving up prices, it appears the demand is primarily domestic:

On the one hand, the average number of people living in each household has dropped, raising demand for housing. On the other, property’s become a more accessible and popular asset class. The proportion of new property finance going to investors stands just below 50 percent, compared with 16 percent in 1991. Baby boomers in search of returns have piled into buy-to-let properties, encouraged by a uniquely Australian tax break known as "negative gearing".

Negative gearing allows investors to claim a deduction on their overall tax bill for any loss generated by a rental property. There’s also a discounted rate of capital gains tax when investors sell. Such breaks mean landlords often can afford for the rent not to cover their mortgage payments.

Canada

  • World's oldest fossils found in Canada, say scientists (The Guardian)   Scientists say they have found the world’s oldest fossils, thought to have formed between 3.77 billion and 4.28 billion years ago.  Comprised of tiny tubes and filaments made of an iron oxide known as haematite, the microfossils are believed to be the remains of bacteria that once thrived underwater around hydrothermal vents, relying on chemical reactions involving iron for their energy.  If correct, these fossils offer the oldest direct evidence for life on the planet. And that, the study’s authors say, offers insights into the origins of life on Earth. 

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

  • Why Central Banks Should Offer Bank Accounts to Everyone (Evonomics)  (See also next several articles.)  As the financial crisis continued to wreak its havoc in late 2010, Mervyn King, then Governor of Britain’s central bank, the Bank of England publicly mused that “of all the many ways of organising banking, the worst is the one we have today”. He was speaking of fractional reserve banking whereby almost all the money circulating in our economy represents claims against commercial banks like Citibank, ING or Barclays even though the deposits they hold constitute a tiny fraction of all the loans they make.  There have subsequently been any number of proposals to solve the resulting problem – which is that bank runs can be so damaging that we’re forced to bail out our banks. But economists can’t agree on a model.  The author suggests that the advent of ubiquitous interconnectivity of the internet offers a solution, summarized by these three excerpts:

The central bank is essentially the wholesaler of banking services with the commercial banks like Citibank retailing those services to all. But in other industries, wholesalers have been disrupting retailers by retailing themselves directly to consumers over the internet. Thus you can still buy your newspaper from your newsagent or a plane ticket from your travel-agent as was common last century, but today you can also buy it direct online from the wholesaler – the airline or the publisher.

In the age of the internet, all citizens and businesses could be provided with lightweight online central bank exchange settlement account at minimal cost. After paying any cost-reflective account keeping fees, your deposits with the central bank would earn the same overnight cash rate it pays commercial banks. And money in your account could be paid to anyone else’s exchange settlement account.

Not only would the resulting banking system have much lower costs and greater efficiency, not only would it throw off tens of billions of dollars in revenue to government, it would be a safer, more rational system playing much better to the respective strengths of public and private sectors. Though it may not obviate the need for further reform, on its own these changes could make a substantial down-payment on the aspirations of those who would urge upon us a more comprehensive redesign of the banking system.

  • On being the right size (Andrew Haldane, Bank of England)  In this 2012 speech, Andy Haldane discussed Bank of England research that revealed "systemic banks" (aka "too big to fail") receive an implicit subsidy that was estimated to be not too much shy of half a trillion dollars in 2012.  This subidy more than offsets previously estimated "economies of scale" made by others.  (See also next items.)  Haldane concludes:

In his 1928 article, J B S Haldane observed that when “you drop a mouse down a thousand-yard mine shaft it walks away, a rat is killed, a man is broken, a horse splashes”. When big banks disappeared down the mineshaft in 2008, their splashes generated a tsunami. To prevent that, their physiology needs to change. Existing change initiatives are right in direction, but may be insufficient in degree. There may be a distance to travel before banking is the right size. 

subsidies.tbtf.banks

  • Rogoff Opens a Can of Worms and U.S. Banks Take the Bait (John Lounsbury, GEI News)  See two preceding articles and the following three articles.  Harvard professor Kenneth Rogoff gave an under-reported talk at the 08 November 2013 IMF conference because Larry Summers got all the attention.   Rogoff broached the idea of opening the Fed to accounts for the general public and expanding the credit creation process to more than "plain vanilla debt" that is created today by the banking system.

  • A Nonpareil Public Bank: The Fed (John Lounsbury, GEI Opinion)  The idea of "permanent money" (aka "debt-free money") issued by the state (or it's designated agent) goes back for centuries and was promulgated in the 20th century by several economists, most notably Milton Friedman in 1948.  The charter of the Fed allows only the direct creation of bank reserves but the central bank could function as a more effective economic system and monetary stabilizer if it had the ability to directly create deposits.  See the following two articles.

  • The Payments System and Monetary Transmission (Rajiv Sethi)   This article was also provoked by Kenneth Rogoff's talk, cited above.  Prof Sethi says:

Allowing individuals to hold accounts at the Fed would result in a payments system that is insulated from banking crises. It would make deposit insurance completely unnecessary, thus removing a key subsidy that makes debt financing of asset positions so appealing to banks. There would be no need to impose higher capital requirements, since a fragile capital structure would result in a deposit drain. And there would be no need to require banks to offer cash mutual funds (money market funds), since the accounts at the Fed would serve precisely this purpose.

But the greatest benefit of such a policy would lie elsewhere, in providing the Fed with a vastly superior monetary transmission mechanism. In a brief comment on Macroeconomic Resilience a few months ago, I proposed that an account be created at the Fed for every individual with a social security number, including minors. Any profits accruing to the Fed as a result of its open market operations could then be used to credit these accounts instead of being transferred to the Treasury. But these credits should not be immediately available for withdrawal: they should be released in increments if and when monetary easing is called for.

The main advantage of such an approach is that it directly eases debtor balance sheets when a recession hits. It can provide a buffer to those facing financial distress, allowing payments to be made on mortgages or auto loans in the face of an unexpected loss of income. And as children transition into adulthood, they will find themselves with accumulated deposits that could be used to finance educational expenditures or a down payment on a home.
 

In contrast, monetary policy as currently practiced targets creditor balance sheets. Asset prices rise as interest rates are driven down. The goal is to stimulate expenditure by lowering borrowing costs, but by definition this requires individuals to take on more debt. In an over-leveraged economy struggling through a balance sheet recession, such policies can only provide temporary relief. 


No matter how monetary policy is implemented, it has distributional effects. As a result, the impact on real income growth of a given nominal target is sensitive to the monetary transmission mechanism in place. One of the things I find most puzzling and frustrating about current debates concerning monetary policy is the focus on targets rather than mechanisms. To my mind, the choice of target---whether the inflation rate or nominal income growth or something entirely different---is of secondary importance compared to the mechanism used to attain it.

The Fed has ventured into commercial banking before. In 1934, Section 13(b) was added to the Federal Reserve Act, authorizing the Fed to "make credit available for the purpose of supplying working capital to established industrial and commercial businesses." This long-forgotten section was implemented and remained in effect for 24 years. In a 2002 article on the Minneapolis Fed's website called "Lender of More Than Last Resort," David Fettig noted that 13(b) allowed Federal Reserve banks to make loans directly to any established businesses in their districts, and to share in loans with private lending institutions if the latter assumed 20 percent of the risk. No limitation was placed on the amount of a single loan. 


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