Interesting Readings 09 April 2018

BANK SCAM WATCH

PNB scam: ED unearths Rs5,000 crore money trail
This will test the skill-set of ED team. Lets hope they get it done properly.

INTERNATIONAL

John Hempton, the Aussie fraud-hunting short seller taunting billionaire investor Bill Ackman

Also subscribe to Bronte Capital blog. The article is thanks to Barry Ritholtz.

Trade wars are good and easy to win

This post was courtsey Barry Ritholtz. The author is worried about US stock markets and believes that central banks will back the markets again. I find that difficult to believe but the past decade has been unbelievable to say the least. But the post triggered some thoughts. Refer to this comment:

This massive growth has had tremendous implications for the global financial system. As the Chinese government sold more Yuan and bought U.S. dollars, they reinvested the USD back into US Treasuries and other relatively safe fixed-income vehicles. This had the effect of pushing interest rates lower, which when combined with the falling rate of inflation from the cheap Chinese goods that were entering America, sent bond prices rocketing higher. As interest rates fell, many consumers were able to refinance their mortgages (or take out equity home lines of credit), which allowed them to buy even more Chinese goods. This, in turn, caused the Chinese government to have to sell even more Yuan and again buy USD, thus creating a self-reinforcing feed back loop. To some extent, the credit excesses that led to the 2008 Great Financial Crisis were the direct result of the Chinese economic reform. China’s transformation had the effect of creating lower inflation and lower interest rates in the rest of the developed world.

Most commentators praise China for "allowing" US to consume more. I think that is wrong way to think about it. It is because of this cheap credit that we had the bubbles and problems of the past decade. Had China been gradual in its development, it would have given about 400 million developed world workers to make the adjustment. The world went along with China in that game to its own detriment. Further, it would have been worthwhile if Chinese workers would be irrevocably moved out of poverty. But that is not so. The upcoming trade wars and squeezing of Chinese supply will put many out of work and push them into poverty. China will have to make a decision to chose who to let go into poverty. To prevent this, China wants to invest in the world through BRI which they will use Chinese capacity and Chinese employment to create assets overseas. It is all fantastic.

Edward Harrison explains this in his post titled China cannot use its Treasury holdings as leverage. Here’s why.  Edward links to work by Micheal Pettis and explains some of the nuances of the present Chinese predicament. Similarly Marshall Auerback highlights some risks to China here.

But here is a cartoon from Tom Toles

OTHERS

Seinfeld has movie coming up!

Puffin beaks are fluorescent and we had no idea
Thanks to Tyler Cowen. Puffins are birds with colorful beaks. The beak apparently lights up under UV light. What I learnt is that birds perceive colors differently. Humans see colors that are a mix of red, blue and green light, while birds have a fourth color in the mix — a property called tetrachromatic vision. Tetrachromacy is quite common among birds reptiles etc. It provides larger visual spectrum (different types of light) though spectral resolution (clarity) is similar to humans.

Not Enough Women at Wikipedia?
There are not enough women editing the stuff on wikipedia. I don't know how to think about this. Wikipedia is a free resource, created by free contribution by everyone. I hope Wikipedia is not stopping women from contributing. That would be stupid. Is it that men contribute overwhelmingly more than women? Why so? Does it say something about pay-gap and gender equality? I wonder.

---

 Buy my books "Subverting Capitalism & Democracy" and "Understanding Firms".