Subject: EconVue Spotlight June 18 2017: The End of Easy Money?
From: "Lyric Hughes Hale" <[email-masked]>
To: "R. Hunter Biden" <[email-masked]>
Date: Sun, 18 Jun 2017 14:09:38 -0700 (PDT)

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EconVue Spotlight

Dear R. Hunter,

An extraordinary era of extreme monetary easing seems to be coming to an 
end with the Federal Reserve's .25% interest rate hike and the 
announcement last week that it would begin unwinding its balance sheet. 
The jury is still out on whether the Fed's actions helped reverse the 
Great Financial Crisis. Given languid growth and stubbornly low 
inflation, perhaps not. EconVue expert Mike Lewis

https://econvue.com/experts/michael-lewis

cites a new Princeton study

http://scholar.princeton.edu/markus/publications/reversal-interest-rate-effective-lower-bound-monetary-policy

that concludes that when global interest rates reach a boundary lower 
than 2% it actually stymies growth. How are the world's central banks 
going to reverse course?

Exit strategies, especially for policies that are unprecedented such as 
quantitative easing, are bound to be difficult to execute. And now that 
the world's economies are so interrelated, policy errors and poor timing 
by just one central bank-- the US, the ECB, the BOJ, or the PBOC--could 
result in global financial contagion. The Bank of Japan, which invented 
quantitative easing, is the only example we have of a central bank that 
was able to unwind its positions. An IMF working paper

https://www.imf.org/external/pubs/ft/wp/2010/wp10114.pdf

describes how Japan was able to accomplish this in March of 2006. BOJ 
Governor Kuroda however has said that this time might be different, 
because of the increased scale and duration of QE.

The job of the Federal Reserve is to regulate inflation and employment. 
In the face of stalling inflation I was surprised by Yellen's statement 
that she is considering abandoning the 2% target for something higher. 
Maybe she is on boarding the Princeton study as well.

Here is deeper dive into US employment-related issues, and then a quick 
look at the ROW.

STORIES IN OUR SPOTLIGHT

U.S. Employment and Inflation

Is the Fed repeating "The Mistake of 1937"?

https://dailyreckoning.com/fed-repeating-mistake-1937/

Brian Maher 6/15/2017 Daily Reckoning

Exit strategies are very hard to execute.

Consumer Price Index summary

https://www.bls.gov/news.release/cpi.nr0.htm

Bureau of Labor Statistics 6/14/2017

CPI falls .1 % in May. Remind me why we raised rates?

New data: Inequality runs even deeper than previously thought

http://review.chicagobooth.edu/economics/2017/article/new-data-inequality-runs-even-deeper-previously-thought

Howard R. Gold 5/23/2017 Chicago Booth Review

Piketty, Saez, and Gabriel Zucman of University of California at 
Berkeley combined tax, survey, and national-accounts data to create 
distributional accounts that they say capture 100 percent of US income 
since 1913.

The role of unemployment in the rise of alternative work arrangements

https://scholar.harvard.edu/files/lkatz/files/katz_krueger_unemp_alt_work_aer_2017.pdf

Lawrence F. Katz and Alan B. Krueger 5/2017 American Economic Review

The share of U.S. workers in alternative work arrangements has increased 
substantially in recent decades. Micro longitudinal analyses show that 
unemployed workers are much more likely to transition into alternative 
work arrangements than other workers. Macro time-series evidence shows 
that weak labor market conditions lead to an increase in non-traditional 
work. But the estimated magnitudes imply that the Great Recession and 
high unemployment in the 2000s can account for only a modest part of the 
rise in alternative work. Secular factors associated with rising 
inequality and technological changes making it easier to contract out 
work appear to be the driving forces.

The rise of alternative work arrangements

https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/WP-114.pdf

US Department of the Treasury, Office of Tax Analysis Working Paper 114 
1/2017

Looking at trends over time, we find that essentially all of the 
increase in self-employment is due to increases in sole proprietors who 
have little or no business-related deductions, and who therefore appear 
to almost exclusively provide labor services. In contrast, the share of 
filers that were small business owners was essentially unchanged. 
Implications for a rising number of people, nearing 20% of the 
workforce, who have no health benefits or retirement plans.

The American Health Care Act: Economic and employment consequences for 
States

http://www.commonwealthfund.org/publications/issue-briefs/2017/jun/ahca-economic-and-employment-consequences

Commonwealth Fund May 2017

First rate analysis of AHCA by state. If adopted, 864,000 jobs gained in 
2018, but by 2026, 924,000 jobs will be lost, mostly in health care. 
Wide variations by state, there is an interactive map of employment 
effects here

http://www.commonwealthfund.org/interactives-and-data/maps-and-data/the-impact-of-aca-repeal-on-employment

.

It's not (just) the working class. It's the service class

http://evonomics.com/richard-florida-not-just-working-class-service-class/

Richard Florida 6/17/2017 Evonomics

The real contested terrain of American politics is the Service Class and 
its locations.

Chart: US business loan growth continuing to slow, It is now below the 
rate in the Eurozone

https://twitter.com/SoberLook/status/874283411522957312

The Daily Shot@SoberLook 6/12/2017

Bullish for the Eurozone. Looking at the previous article on alternative 
work, if some new businesses are really just sole proprietors leasing 
out their labor, they have no need for loans.

The age of the Microsoft and Amazon&nbsp;economy

http://timharford.com/2017/06/the-age-of-the-microsoft-and-amazon-economy/

Tim Harford 6/16/2017 Tim Harford Blog

Why hasn't competition chipped away at the market position of the 
leading companies? The simplest explanation: they are very good at what 
they do. Competition isn't a threat to them. It's an opportunity. Will 
Amazon do to groceries what they've already done to retail? How will 
employment be affected when groceries are stored and distributed by 
robots?

World

IMF statement on completion of China mission

https://www.imf.org/en/News/Articles/2017/06/07/pr17219-china-imf-staff-completes-2017-article-iv-mission

David Lipton, 6/14/2017 IMF

In order to boost consumption, China should invest more in social 
services such as education and health care, which are currently 
incentivizing savings. H/t Brad Setser

https://www.cfr.org/blog/Setser

Trump—blundering into European truths

http://grahamefuller.com/trump-blundering-into-european-truths/

Graham E. Fuller 6/5/2017 Graham E. Fuller Blog

"So, Trump has bluntly called upon the EU to shoulder a greater share of 
the burden in NATO. He is not wrong." An alternative view. More than 70 
years after the end of WW2, Is it not time for both Germany and Japan to 
control their own security?

Putin Peppered with Tough Questions During Annual Show

https://www.voanews.com/a/putin-peppered-with-tough-questions-during-annual-show/3902364.html

Daniel Schearf 6/15/2017 VOA News

Reality TV, Russian Style: This year's questions shifted focus from 
foreign relations to worsening domestic social conditions.

The amazing Arab scholar who beat Adam Smith by half a millennium

http://evonomics.com/amazing-north-african-scholar-beat-adam-smith-half-millennium/

Dániel Oláh 6/10/2017 Evonomics

Thanks to this self-created gap the most outstanding islamic figure of 
the Middle Ages, the Andalusian scholar and politician Ibn Khaldun is 
neglected in mainstream textbooks.

Africa: Malawi Just Like the rest of Africa is not poor - Mutharika

http://allafrica.com/stories/201706100108.html

Kondwani Munthali 6/9/2017 Allafrica.com

http://Allafrica.com

Sub-Saharan Africa receives $134 B in loans & development aid. But $192 
B flows back to developed countries to gain better returns on 
investment. The president of Malawi speaks to the Oxford Union.

Japan and India challenging China in Africa

http://www.eastasiaforum.org/2017/06/16/japan-and-india-challenging-china-in-africa/

Purnendra Jain 6/16/207 East Asia Forum

Japan has not joined the China-led Asian Infrastructure Investment Bank, 
just as India did not send official representatives to the Belt and Road 
Forum in Beijing in May 2017... Japan and India's absence in these 
leading initiatives and events, which have attracted otherwise global 
attention and participation, confirm their deep misgivings about China.

Experts believe the next WannaCry may go up for sale this summer

http://www.idgconnect.com/blog-abstract/27280/experts-believe-wannacry-sale-summer

Dan Swinhoe 6/15/2017 IDG Connect

Businesses in the UK are willing to pay an average of $136,000 to regain 
control of their IP. And no one really knows if Wannacry is a state 
actor or two guys in a basement. (Their branding was heinous but pure 
genius.)

ECONVUE RESEARCH

Extreme Fed stimulus has not helped; new study argues it may hurt 
economy

http://www.econvue.com/reports/michael-lewis/extreme-fed-stimulus-has-not-helped-new-study-argues-it-may-hurt-economy

Michael Lewis

https://econvue.com/experts/michael-lewis

Evidence is mounting that prolonged ultra-accommodative policy has 
actually been a drag on the economy. The lesson seems to be that short 
rates below 2% and certainly below 1% are too low to affect investment 
decisions meaningfully; they provide little or no net stimulus. And 
since the early 1990s, prolonged easy policy has been followed by 
financial/economic disaster. What are the odds that this is a 
coincidence?

The Ikon: the best world money

https://econvue.com/pulse/ikon-best-world-money

Robert Pringle

https://econvue.com/experts/robert-pringle

I argue that the best numeraire would be a new currency standard that I 
have called the "Ikon". This refers to a basket of world equities. 
Everybody holding money would then have a personal stake in the future 
prosperity of the world and be induced, as if by an invisible hand, to 
work towards it.

Robert Pringle was formerly the head of the World Gold Council.

How to escape the vicious circle of declining potential output

https://econvue.com/pulse/how-escape-vicious-circle-declining-potential-output

Karim Pakravan&nbsp;

https://econvue.com/experts/karim-pakravan

The financial crisis and the ensuing global recession only exacerbated 
trends that had been developing over the previous decade. In order to 
understand this discontinuity in economic trends, I propose to focus on 
a simple concept, potential economic growth.

What does a housing slump actually look like?

http://www.abc.net.au/news/2017-06-06/what-does-a-housing-slump-actually-look-like/8575138

Saul Eslake

https://econvue.com/experts/saul-eslake

6/6/2017 ABC News

I'm not forecasting a ‘housing bust', but in this interview with Jessica 
Haynes of ABC Online, published on 6th June 2017, I look at what might 
happen if there were to be one.

If you'd like to help support EconVue, subscribe to our experts, or 
engage them in further research or discussion, by contacting Ms Ying 
Zhan [email-masked] .

I'll end this week's Spotlight with another Princeton reference, a quote 
from from economist Alan Blinder . He says politicians use economists 
the way that drunks use lampposts- - for support, not illumination. You 
can register for the live webcast of his always enlightening remarks at 
Brookings on Tuesday here

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.

With all best wishes,

Lyric Hughes Hale

Editor-in-Chief

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