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What We Read Today 28 July 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:

  • It’s not just Amazon’s fault

  • Consumer Loan Charge-offs Increase

  • Statement for the Press : Letter to Wright Patman, House of Representatives

  • Marriner Stoddard Eccles

  • The Future of the Fed Balance Sheet

  • Central Bank Stimulus of the Stock Market

  • Paris Accord Key Points

  • The Treasury Secretary Just Lied Under Oath

  • Trump Administration Proposes Repeal of Fracking Protections

  • Exclusive: Majority of Americans support transgender military service - poll

  • Is General Joe Dunford Guilty of Insubordination?

  • Multi Year High for the Euro

  • Germany Core CPI Rose to 1.7%

  • In Italy's parched Po River valley, climate change threatens the future of agriculture

  • Romans are about to go eight hours a day without water

  • De-conflict deals show Syrian rebels know victory is out of sight

  • A coup in the House of Saud?

  • Putin signs Syria base deal, cementing Russia's presence there for half a century

  • Russia ready to cooperate with U.S., Russia's Lavrov told Tillerson: ministry

  • Free trade deal hurts women, indigenous people, India rights groups say

  • Philippines Trade Deficit Continues to Worsen

  • North Korea fires ballistic missile in unusual night test

  • Missile North Korea launched was an ICBM: Pentagon

  • How Fairly Valued is China’s Currency? Big Mac and Mini Mac Square Off Again.

  • And More

Articles about events, conflicts and disease around the world

Global

paris.accord.key.points

U.S.

  • The Treasury Secretary Just Lied Under Oath (The Nation)  Hat tip to Roger Erickson.  Steve Mnuchin and Joseph Otting, the only two CEOs in the short and ignominious history of OneWest Bank, both testified before Congress on Thursday.  Both of them lied under oath.

In both cases, the lies in question concern OneWest, the properly labeled “foreclosure machine” that caused unnecessary ruin for an untold number of families after the great crash of 2008. I say “untold” because Otting and Mnuchin still refuse to supply basic records of how many families suffered foreclosure at their hands. Several senators asked for this information today without success. Senator Sherrod Brown said that he appealed to Mnuchin six separate times for these records and got no satisfactory response. Brown asked Otting the same question Thursday, and Otting said that the records were in the hands of CIT, which purchased OneWest in 2015, and added that he would “support” release of the data, but “I don’t feel it’s my position to request that information.”

As a mortgage servicer (handling day-to-day operations on loans), OneWest pushed borrowers into foreclosure with bait-and-switch tactics. It presented phony documents to courts as evidence for those evictions. It violated numerous foreclosure laws in California, to the extent that the office of the state attorney general’s consumer-law section wanted to prosecute the bank. In an industry of rogues, OneWest stood out.

But Otting, like Mnuchin before him, maintained that OneWest actually was a white knight, routinely coming to the rescue of homeowners.

  • Trump Administration Proposes Repeal of Fracking Protections (EcoWatch)  Three days before oral arguments are scheduled in the 10th Circuit Court of Appeals on Bureau of Land Management safety measures to regulate fracking operations on public lands, the U.S. Department of Interior is moving ahead with its plan to rescind the 2015 rule.  The rule, which was the product of nearly five years of agency work, expert input, public comments and hearings, never went into effect after it was challenged immediately by oil and gas industry trade associations. After a district court judge set aside the rule in 2016, BLM and citizen groups appealed to the 10th Circuit in late 2016.  The Trump administration, however, reversed course in March 2017 and announced that it would propose repealing the rule. Today, the administration formalized that reversal with a proposal to be published Tuesday for public notice and comment.

  • Exclusive: Majority of Americans support transgender military service - poll (Reuters)   A majority of Americans believe that transgender individuals should be allowed to serve in the military, according to an exclusive Reuters/Ipsos opinion poll released on Friday.  The July 26-28 poll suggested that the country largely disagrees with President Donald Trump's announcement this week that he will ban transgender personnel from the armed forces.  When asked to weigh in on the debate, 58% of adults agreed with the statement, "Transgender people should be allowed to serve in the military." Twenty-seven percent said they should not while the rest answered "don't know."

Democrats mostly supported military service by transgender Americans while Republicans were more evenly split.

Among Republicans, 32 percent said transgender Americans should be allowed to serve, while 49 percent said they should not. Another 19 percent of Republicans said they don't know.

dunford.flipped.the.bird

EU

Germany

germany.core.cpi.2017.jul.28

Italy

  • In Italy's parched Po River valley, climate change threatens the future of agriculture (Thompson Reuters Foundation News)  The Po River, Italy's largest reservoir of freshwater, is thirsty.  A severe drought that has lasted months and shows no signs of easing has led to a fall in water reserves, raising fears about coming harvests and putting a huge strain on the river valley's crucial agricultural sector.  The alarm was first raised in June, when an exceptional heat wave forced several mayors and governors to declare a state of emergency and take restrictive measures, including water rationing.   See Romans are about to go eight hours a day without water (The Washington Post).  Farmers, by far the largest users of the Po's waters – taking around 16.5 billion cubic meters out of 20.5 billion extracted each year – have been the most severely affected.  An 81-year-old tomato farmer says, as water runs out:

"I've never seen anything like this in my whole life." 

Syria

Ultimately the US and Russia hope that the two camps in the Syrian conflict will join efforts to fight radical jihadi groups such as Jabnhat al-Nusra and ISIS in al-Ghouta and elsewhere.

Saudi Arabia

  • A coup in the House of Saud? (Asia Times)  Hat tip to Roger Erickson.  The secret is out: the ascension of Mohammad bin Salman (MBS), displacing CIA favorite Mohammad bin Nayef as Crown Prince, was in fact a white coup against a CIA-backed heir.  The CIA stopped another coup against the young Emir of Qatar, Sheikh Tamim al-Thani, orchestrated by Mohammed bin Zayed, Crown Prince of Abu Dhabi, with help from Blackwater/Academi’s army of mercenaries in the United Arab Emirates.

"The Saudis are scared. The monarchy is in trouble, as the CIA can move the army in Saudi Arabia against the king. This was a defensive move by MBS."

Russia

  • Putin signs Syria base deal, cementing Russia's presence there for half a century (Reuters)  President Vladimir Putin has signed a law ratifying a deal with the Syrian government allowing Russia to keep its air base in Syria for almost half a century, official documents show.  The original deal, signed in Damascus in January, sets out the terms under which Russia can use its Hmeymim air base in Latakia Province which it has used to carry out air strikes against forces opposing President Bashar al-Assad.  Econontersect:  Syria is now officially a Russian bloc country.

  • Russia ready to cooperate with U.S., Russia's Lavrov told Tillerson: ministry (Reuters)  Russia is ready to normalize relations with the United States and to cooperate on major global issues, Moscow's Foreign Minister Sergei Lavrov told U.S. Secretary of State Rex Tillerson in a phone call on Friday.  Lavrov told Tillerson that Moscow's decision to cut U.S. diplomatic staff in Russia was prompted by

"a number of Washington's hostile steps".

India

  • Free trade deal hurts women, indigenous people, India rights groups say (Thompson Reuters Foundation News)  Hat tip to Sanjeev Kulkarni.  A regional free trade agreement being negotiated in India this week will hurt the livelihoods of farmers, women and indigenous groups and increase conflicts over land as businesses get easier access, rights groups said on Tuesday.  The Regional Comprehensive Economic Partnership (RCEP) would create a free trade area of more than 3.5 billion people, bringing together China, India, Japan, South Korea, Australia and New Zealand as well as Southeast Asian nations.  Talks began in 2012, and it is currently the only mega free-trade agreement being negotiated globally. The 16 nations aim to conclude negotiations by the end of the year.  Campaigners who met in the southern Indian city of Hyderabad, which is hosting the RCEP negotiations, are protesting against the deal, calling it "anti-farmer, anti-women and anti-poor", and are asking governments to protect their rights.  Econintersect:  Should we also ban computers to protect the rights of sliderule makers?  Ban horseless carriages to protect buggy whip makers?  Is there a right to be inefficient? 

Philippines

North Korea

China

The “law of one price” holds that identical goods should trade for the same price in an efficient market. But how well does it actually hold internationally? The Economist magazine’s famous Big Mac Index uses the price of McDonald’s Big Macs around the world, expressed in a common currency (U.S. dollars), to measure the extent to which various currencies are over- or under-valued. The Big Mac is a global product, identical across borders, which makes it an interesting one for this purpose.

Big Macs travel badly, however. Flows of burgers across borders won’t align their prices. So in 2013 we created our own Mini Mac Index that compares the price of iPad minis across countries. Minis are a global product that, unlike Big Macs, can move quickly and cheaply around the world. 

The “law of one price” holds that identical goods should trade for the same price in an efficient market. But how well does it actually hold internationally? The Economist magazine’s famous Big Mac Index uses the price of McDonald’s Big Macs around the world, expressed in a common currency (U.S. dollars), to measure the extent to which various currencies are over- or under-valued. The Big Mac is a global product, identical across borders, which makes it an interesting one for this purpose.

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

  • It’s not just Amazon’s fault (Vitaliy Katsenelson, Contrarian Edge)  VK has contributed to GEI.  Retail stocks have been annihilated recently, despite the economy eking out growth. The fundamentals of the retail business look horrible: Sales are stagnating and profitability is getting worse with every passing quarter.  Jeff Bezos and Amazon get most of the credit, but this credit is misplaced. Today, online sales represent only 8.5%  of total retail sales. Amazon, at $80 billion in sales, accounts only for 1.5% of total U.S. retail sales, which at the end of 2016 were around $5.5 trillion. Though it is human nature to look for the simplest explanation, in truth, the confluence of a half-dozen unrelated developments is responsible for weak retail sales.  Our consumption needs and preferences have changed significantly:

  • Over the last 10 years spending on mobile phones and services has grown from near zero to $340 billion.

  • Increasing health care costs have replaced former retail spending.

  • We now spend much less on clothing.

  • Brick and mortar retail space has been overbuilt putting a drain on profitability.

  • The American consumer has been deleveraging, or at least not adding leverage as fast - see next article.

  • Consumer Loan Charge-offs Increase (The Daily Shot)  Consumer loan charge-offs have been on the rise recently despite a strong labor market.  Loan default is a form of deleveraging.

  • Statement for the Press : Letter to Wright Patman, House of Representatives (St. Louis Fed)  Hat tip to Roger Erickson.  This is a letter from Fed Chair Marriner Eccles presenting arguments against the creation of money without debt by the U.S. Treasury, written to Wright Patman (D-TX) who served in the U.S. House of Representatives 1929-1976, and was Chair of the House Committee on Banking and Currency (1963-1975).  See Wikipedia.  Patman was  a self-styled "populist" who energetically attacked the banks, the banking system, and the Federal Reserve system.

  • Marriner Stoddard Eccles (Wikipedia)  Marriner Stoddard Eccles (September 9, 1890 – December 18, 1977) was a U.S. bankereconomist, and member (1936-1951) and chairman (1936-1948) of the Federal Reserve Board.  The Eccles Building that houses the headquarters of the Federal Reserve in Washington, D.C. was named after Eccles in 1982.  The second quote below is from his memoir Beckoning Frontiers (1951).  From Wikipedia:

while working in a family enterprise in Blacksmith Fork Canyon, he learned of the untimely death of his father, David Eccles. With great skill and tenacity, he was able to reorganize and consolidate the assets of his father's industrial conglomerate and banking network. Eccles expanded the banking interests into a large western chain of banks called Eccles-Browning Affiliated Banks. He was a millionaire by age 22. The company withstood several bank runs during the Great Depression and, as a leading banker, Eccles became involved with the creation of the Emergency Banking Act of 1933 and the Federal Deposit Insurance Corporation. After a brief stint at the Treasury Department and with the support of treasury secretary Henry Morgenthau, Jr., Eccles was appointed by President Roosevelt as the Chairman of the Federal Reserve.

"As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth ... to provide men with buying power. ... Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. ... The other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped."[3]

  • The Future of the Fed Balance Sheet (The Daily Shot)  Moody's has a projection for the  unwinding of the Fed balance sheet.  Note that the projection is that the contraction of the Fed balance sheet will occur as their is a slowing of the rate of growth of currency in circulation.  See also next article.

  • Central Bank Stimulus of the Stock Market (The Daily Shot)  Some analysts remain convinced that the stock rally has been tightly linked to the total central bank stimulus. That doesn’t bode well for the market over the next couple of years.


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