Early Headlines: Syriza Wins, Asian And European Stocks Weak, Savage Capitalism, Much Ado About Fed, China Pushes For WTO And IMF Status And More

Written by John Lounsbury

Early Bird Headlines 21 September 2015

Econintersect: Here are some of the headlines we found to help you start your day. For more headlines see our afternoon feature for GEI members, What We Read Today, which has many more headlines and a number of article discussions to keep you abreast of what we have found interesting.

Global

• Asian shares slump on global growth concerns, U.S. selloff (Reuters) Asian shares and emerging currencies fell on Monday after the U.S. Federal Reserve’s decision to keep interest rates at record lows raised fresh concerns about growth globally, particularly in China. European markets were set to follow suit, with financial spread betters expecting Britain’s FTSE 100 .FTSE to slip 0.4%, Germany’s DAX .GDAXI 0.5%t, and France’s CAC 40 .FCHI 0.2-0.3%. U.S. stock futures ESc1 slipped 0.4% during the Asian day, suggesting further weakness on Wall Street after major indexes fell more than 1.3% on Friday on worries that slower overseas demand will hurt corporate profits.

• Savage capitalism is back – and it will not tame itself (David Graeber, The Guardian) Hat tip to Roger Erickson.

… what happened in western Europe and North America between roughly 1917 and 1975 – when capitalism did indeed create high growth and lower inequality – was something of a historical anomaly. There is a growing realisation among economic historians that this was indeed the case. There are many theories as to why. Adair Turner, former chairman of the Financial Services Authority, suggests it was the particular nature of mid-century industrial technology that allowed both high growth rates and a mass trade union movement. Piketty himself points to the destruction of capital during the world wars, and the high rates of taxation and regulation that war mobilisation allowed. Others have different explanations.

No doubt many factors were involved, but almost everyone seems to be ignoring the most obvious. The period when capitalism seemed capable of providing broad and spreading prosperity was also, precisely, the period when capitalists felt they were not the only game in town: when they faced a global rival in the Soviet bloc, revolutionary anti-capitalist movements from Uruguay to China, and at least the possibility of workers’ uprisings at home. In other words, rather than high rates of growth allowing greater wealth for capitalists to spread around, the fact that capitalists felt the need to buy off at least some portion of the working classes placed more money in ordinary people’s hands, creating increasing consumer demand that was itself largely responsible for the remarkable rates of economic growth that marked capitalism’s “golden age”.

U.S.

• The Fed Is Trapped: The Naked Emperor’s New “Reaction Function” (Zero Hedge) This post argues that the Fed is no longer making proactive decisions but is nor reacting to the condition of global financial markets. Here is a key statement:

… the Fed, were it to have hiked on Thursday, would have been tightening into a market where the liquidation of USD assets by foreign central banks was already sapping global liquidity and exerting a tightening effect of its own.In other words, the FOMC would have been tightening into a tightening.

• Fed Opens Negative Interest Rate Pandora’s Box: What Happens Next (Talk Markets) Will the Fed’s next move be to drive interest rates below zero? See GEI Investing fpr more on negative interest rates: Market Rallies, Fed Kills It

EU

• Migrant crisis: Thousands arrive in Austria with EU talks due (BBC News) Migrants walk while EU officials talk.

Greece

• Greece election: Alexis Tsipras hails ‘victory of the people’ (BBC News) Greece’s Alexis Tsipras has said his left-wing Syriza party has a “clear mandate” after winning a second general election in less than nine months. But he said Greeks faced a difficult road and recovery from financial crisis would only come through hard work. Syriza has won just over 35%, slightly down on its previous result, while the main opposition Conservative New Democracy won 28%. The number of parliament seats won is a few short of a majority so Syriza will again form a coalition with the right wing nationalist Independent Greeks.

Japan

• Fed decision likely reflected voice of emerging economies: Japan finance minister (Reuters) Japanese Finance Minister Taro Aso said on Friday that the U.S. decision to hold interest rates steady probably reflected lobbying by emerging economies at the recent G20 meeting that rapid U.S. rate hikes would damage their economies.

China

• France sees no big risk in China economy, backs yuan bid (Reuters) France sees no significant risk in China’s economy and is supporting its bid to win approval for the yuan’s inclusion in the International Monetary Fund’s currency basket, French Finance Minister Michel Sapin said on Friday. France supports Beijing’s efforts to strengthen the yuan’s position in global trade as well as “China’s bid to integrate the yuan amongst the IMF currencies“, Sapin said at the opening of the China-France High-Level Economic and Financial Dialogue in Beijing.

• China revs up its bid for WTO market economy status (Financial Times) Beijing is accelerating its push for World Trade Organisation market economy status (MES) despite growing international criticism that it has backed away from difficult economic reforms. Granting Beijing MES would make it easier for Chinese companies targeted in WTO anti-dumping cases to defend themselves, leading some to warn of “disastrous consequences” for the EU and US. See also next two articles.

• Is China a market economy? The fight begins (Financial Times) The gloves are coming off in the intensifying dispute over whether the EU should recognize China as a market economy. A group of European industry organizations has commissioned a report from the Economic Policy Institute in Washington, which concludes that the granting of market economy status to Beijing would endanger between 1.7m and 3.5m jobs in the EU. See next article.

• Unilateral Grant of Market Economy Status to China Would Put Millions of EU Jobs at Risk (Economic Policy Institute) The European Union is considering whether to formally recognize China as a “market economy,” a move that would fundamentally change the way EU countries handle dumped exports under the World Trade Organization (WTO). With some EU officials reportedly in favor of unilaterally granting market economy status (MES) to China – and with the United States and other countries set to debate the same question – it is useful to examine what the change would mean for the European economy and its workers. Even without the proposed change the Eu trade deficit with China has grown more than 4x since 2000. (See graph below.)

According to our analysis, an EU decision to unilaterally grant MES to China would put between 1.7 million and 3.5 million EU jobs at risk by curbing the ability to impose tariffs on dumped goods and thus allowing Chinese companies to undercut domestic production by flooding the EU with cheap goods.