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What We Read Today 08 January 2018

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 Monday, Wednesday, and Friday in the late afternoon New York time. For early morning review of headlines see "The Early Bird" published Monday through Friday in the early am at GEI News (membership not required for access to "The Early Bird".).

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Topics today include:

  • ​Bond Quality is Degrading

  • Monetary Policy for Full Employment and Price Stability

  • A lost century in economics: Three theories of banking and the conclusive evidence

  • Why your taxes could go up sooner than you think

  • Monetizing Labor

  • Coal in the Labor Market Stocking?

  • Electric Vehicle Global Growth Curve

  • CEO of 'Fire and Fury' publisher responds to Trump legal threat

  • December 2017 BLS Jobs Situation Below Expectations But Still OK

  • Grand Jury Empaneled In $10 Million Fraud Probe Involving Jane And Bernie Sanders

  • Decision could spell deportation for these 250,000 immigrants

  • Poll: Trump approval drops to 37 percent

  • White House rejects Bannon's apology

  • Removing a president using the 25th Amendment would require a political apocalypse

  • Retail Investors Are on Their Longest Buying Spree of the Bull Market

  • 64 migrants believed dead after boat sinks in Mediterranean

  • Euro-Area Economic Confidence Soars to Nearly Two-Decade High

  • India's highest court to review colonial-era law criminalising gay sex

  • China’s Richest Woman Made $2 Billion in Just Four Days

  • And More

Articles about events, conflicts and disease around the world

Global

ev.growth.2010.2017

U.S.

"The president is free to call news 'fake' and to blast the media. That goes against convention, but it is not unconstitutional.  But a demand to cease and desist publication—a clear effort by the President of the United States to intimidate a publisher into halting publication of an important book on the workings of the government—is an attempt to achieve what is called prior restraint. That is something that no American court would order as it is flagrantly unconstitutional."

  • Coal in the Labor Market Stocking? (The U-6 Fix)  The unemployment rate and labor force participation rate were unchanged at 4.1% and 62.7%, respectively.  The household report showed modest growth in the labor force, employment, and reduction in the unemployed that largely matched the larger employer survey.  Within the unemployment rates there were some interesting moves. Those with less than a high school diploma saw their unemployment rate bounce up from 5.2% to 6.3% (after two successive declines). Teen unemployment fell to 13.6% – offsetting the November rise. African-American unemployment reached 6.8 percent, which is the lowest since 1972.  Data junkies here’s your fix: the December U-6 (the broadest measure of unemployment) rose to 8.1%, due to a rise in those marginally attached to the labor force.  For data details see December 2017 BLS Jobs Situation Below Expectations But Still OK.

  • Grand Jury Empaneled In $10 Million Fraud Probe Involving Jane And Bernie Sanders (Zero Hedge)  An FBI probe into a 2010 property deal orchestrated by Jane Sanders, wife of Sen. Bernie Sanders (I-VT), has escalated after a report by VTDIGGER reveals that a grand jury has been empaneled, and at least one witness has given sworn testimony in the case.   According to VTDigger,

"Former Burlington College board member Robin Lloyd says she testified for about an hour on Oct. 26 before a grand jury at the federal courthouse in Burlington."

  • Decision could spell deportation for these 250,000 immigrants (CNN)  The Department of Homeland Security announced Monday it is ending "temporary protected status" for Salvadorans.  They've lived legally in the United States for nearly two decades followong 2001 earthquakes in San Salcador that displaced 1.3 million people.  And now, the 250,000 who migrated to the U.S. have less than two years to leave, find another legal way to stay or face deportation.

  • Poll: Trump approval drops to 37 percent (The Hill)  President Trump’s approval rating dropped slightly to 37% following a week of explosive allegations detailed in a new book about the Trump administration, according to a poll released Monday.  The first Gallup Poll of 2018 shows Trump’s approval rating dipped 2 percentage points in the last week. A Dec. 31 poll showed Trump with a 39% approval rating, his highest mark in months.  The current reading still remains above the 35% level seen three times in 2017.

gallup.trump.2018.jan.07

  • White House rejects Bannon's apology (The Hill)  The White House on Monday rejected Stephen Bannon’s attempt to take back his criticism of the president and his children.  Spokesman Hogan Gidley said President Trump’s stands by his belief that Bannon has “lost it” and is “only in it for himself.”  The comments do not bode well for Bannon, whose job as head of Breitbart News is reportedly in jeopardy due to the rift with Trump.

  • Removing a president using the 25th Amendment would require a political apocalypse (CNN)  The 25th Amendment is back in the news so this bears repeating. Again. The type of event in which you could imagine President Donald Trump's Cabinet and his vice president engaging in a political mutiny against him and removing him from power using the 25th Amendment would require something like a presidential coma or a disagreement of such epic proportions as to threaten the fabric of the country or its very existence.  It's hard to imagine.  The amendment was ratified in the wake of John F. Kennedy's assassination and debilitating illnesses of Dwight D. Eisenhower -- and it requires a crisis on that level to be enacted.

  • Retail Investors Are on Their Longest Buying Spree of the Bull Market (Bloomberg)  Retail investors in the U.S. are showing the most enthusiasm for stocks since the nine-year bull market began, another signal of growing optimism as financial markets hit new highs.

Click for larger image.

EU

  • 64 migrants believed dead after boat sinks in Mediterranean (CNN)  Sixty-four migrants are presumed dead after the rubber dinghy they were traveling in sank off the coast of Libya over the weekend, humanitarian groups said on Monday, as 86 people were plucked from the waters by the Italian Coast Guard.  Eight bodies were recovered and the remaining 56 are still missing and presumed dead. The humanitarian organization Medecins Sans Frontieres (MSF) said eight members of a family of 11 are among the presumed dead, along with the mother of a 3-year-old child who survived. MSF is assisting the survivors in the Italian port of Catania, according to a tweet on Monday.

With 3,116 deaths in 2017, the Mediterranean remained the deadliest migrant route in the world last year, despite a sharp fall in attempted crossings, according to the IOM. Of those, 2,832 migrants died on the central Mediterranean route.

  • Euro-Area Economic Confidence Soars to Nearly Two-Decade High (Bloomberg)  Confidence in the euro area continued its advance at the end of 2017, capping what was probably the strongest year for the economy in a decade.  The European Commission’s measure of sentiment touched its highest since late 2000 in December. The reading of 116 was above the median forecast of 114.8 in a Bloomberg survey and was based on an improvement in the outlook for industry and services.

India

  • India's highest court to review colonial-era law criminalising gay sex (The Guardian)  Supreme court to re-examine legislation activists say is used to blackmail LGBTI Indians and block HIV and Aids initiatives.  The court said on Monday that it would refer the question of the validity of section 377 of the Indian penal code to a larger bench for examination before October.

Section 377, modelled on a 16th-century British law, bans “carnal intercourse against the order of nature with any man, woman or animal”, and is punishable by life imprisonment.

China

  • China’s Richest Woman Made $2 Billion in Just Four Days (Bloomberg)  A share surge at Country Garden Holdings Co., China’s largest developer by sales, has sent Vice Chairman Yang Huiyan’s wealth up by $2.1 billion -- and that’s just in the first four trading days of the year.  Yang, controlling shareholder of Country Garden, saw her fortune soar to $25.6 billion as of Jan. 5 to rank as the fifth-richest person in the nation, according to the Bloomberg Billionaires Index. That’s before Country Garden’s shares rose another 7.4% on Monday in Hong Kong trading, taking its year-to-date-gain to 17%.

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

  • Bond Quality is Degrading (Moody's Investor Services)   The Moody’s bond covenant quality index has been declining for several years. This will come back to haunt investors in the next downturn.

  • Monetary Policy for Full Employment and Price Stability (Binzagr Institute)  See more from this article later, below.  See also next article.  This paper analyzes the failure of QE (quantitative easing) as a result of a faulty model of banking operations.  This model starts with the defective concept of barter as a basis for money.  That leads to the erroneous idea that banks lend deposits up to a level determined by reserve requirements.

Despite arguments that “credit easing will undoubtedly play a leading role in promoting a full recovery of the economy and financial markets” (Carlson et al. 2009), the economy remains hampered by long-term unemployment, part-time employment and a general economic insecurity despite 10 years of historically low interest rates. An explanatory factor for the failure of credit easing to expand productive economic activity is the conventional understanding of money and the operations of banks. These policies originate from the mistaken description of money’s evolution promoted by the barter myth. This false evolution claims that barter precedes coinage and coinage leads to credit and concludes that banks require deposits to make loans (Graeber 2011). An improper ordering of events hinders the viability of QE to operate properly. As Basil Moore (1990) points out loans create deposits and deposits create reserves, this is endogenous money creation. Banks generate loans to credit worthy barrowers; they do not need to wait for deposits before extending credit. In this process, the Federal Reserve, as LOLR, accommodates banks in need of reserves that they are unable to obtain in the Fed Funds market. Thus, removing treasury bonds and MBSs from bank balance sheets in favor of cash reserves has not been able to generate new lending as banks do not lend reserves to customers. Consequently, this program cannot deliver the desired “full recovery of the economy and financial markets.”

In fact, this process may actually be contractionary. First, QE is taking treasuries and the MBSs off the balance sheets of the banks. In addition to the removal of these assets, the Federal Reserve also removes the interest returns of those assets. In 2012, the Federal Reserve’s net interest income was $90.6 billion (Palley 2013). Moving those interest earnings out of the private sector generates a “fiscal drag” on economic activity as “QE redistributes interest payments on debt to the monetary authority, and thereby back to the fiscal authority” (Palley 2013, 2). 

  • A lost century in economics: Three theories of banking and the conclusive evidence (International Review of Financial Analysis)  How do banks operate and where does the money supply come from? The financial crisis has heightened awareness that these questions have been unduly neglected by many researchers.  The question is considered why the economics profession has failed over most of the past century to make any progress concerning knowledge of the monetary system, and why it instead moved ever further away from the truth as already recognised by the credit creation theory well over a century ago. The role of conflicts of interest and interested parties in shaping the current bank-free academic consensus is discussed.  The author (Richard Werner) finds that "lack of rigour" is "a cause of confusion" in economic theory as regarding money.

The failure by leading economists to incorporate banking in their economic theories has been identified as a significant and costly weakness (Werner, 1997, 2005; Kohn, 2009). Likewise, it has been pointed out that the macro-economic feedback of banking activity had been neglected in finance research (Werner, 2012). Recognition of these shortcomings has led to the emergence of ‘macro finance’ as a new discipline, nested within the finance research agenda. The present paper contributes to this growing literature by addressing a long-standing central dispute about the role and function of banks, which has major implications for monetary and macroeconomics, finance and banking, as well as government policy: it is the question whether a bank lends existing money or newly creates the money it lends.

Highlights

•The three theories of how banks function and whether they create money are reviewed

•A new empirical test of the three theories is presented

•The test allows to control for all transactions, delivering clear-cut results.

•The fractional reserve and financial intermediation theories of banking are rejected

•Capital adequacy based bank regulation is ineffective, credit guidance preferable

•This is shown with the case study of Barclays Bank creating its own capital

•Questions are raised concerning the lack of progress in economics in the past century

•Policy implications: borrowing from abroad is unnecessary for growth

  • Why your taxes could go up sooner than you think (The Motley Fool)  Chained CPI (which is lower than Consumer CPI) applies to deduction limits and to tax brackets under the new tax law.  However, incomes tend to rise more in line with Consumer CPI.  This will lead to "bracket creep" (incomes will slowly rise into higher tax brackets) and to increasing loss of deductions over time (deductions are reduced for higher incomes).  Table below shows an example form this article:

chained.cpi.loss.of.deductions

  • Monetary Policy for Full Employment and Price Stability (Binzagr Institute)  The author proposes that labor potential can be "monetized" by the Fed to produce a QE (quantitative easing) for the real economy (Main Street), just as the massive purchase of securities has been QE for financial economy.  The financialization of labor can provide money where labor is most underutilized (areas of high unemployment).

... employment and production is to be supported through a new broad based eligibility program designed to relieve those facing the most exigent of situations in America, poverty, unemployment, and long-term unemployment. Those in poverty, unemployed and long-term unemployed are unable to secure credit from financial institutions. Using geographic information system technology, the Fed can target spaces in need of capital flows with underutilized labor power. Figure 3 displays unemployment across metropolitan statistical areas (MSAs). This low level resolution is an appropriate regional tool for the Federal Reserve System. Using MSAs allows for targeting of high stress areas. In addition to concerns about urban employment, tools are available to analyze the underutilized capacity in the surrounding rural spaces. 

Click for larger image.
unemployment.map
 


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