EconVue Spotlight | A Big Week in Washington

There were three big stories out of Washington this week. President Trump’s trip to Asia has nearly overshadowed news of Congress’s proposed tax changes, and for the first time since G. William Miller, the Federal Reserve will be led by a non-economist.

Opportunities for turbulence abound; I imagine that US diplomats in Asia are now holding their collective breaths. Changes to corporate taxation and the Mortgage Interest Deduction could alter the flight path of the US economy. Will the Fed be able to maintain its present altitude in the face of geopolitical and congressional headwinds? Markets seem to be saying yes.

Below please find a selection of provocative articles by EconVue experts and others you might have missed.  The opioid epidemic in the US has been a sociological and economic bombshell, as outlined by David Johnson. Blockchain continues to evolve at a break neck pace, as Collin Canright’s blog continues to update us. Nicholas Benes chronicles the rise of corporate governance in Japan, and indeed the Japanese stock market is up 18% YTD. 

Another discussion thread is emerging, one of key concern to investors that is explored by many of the authors I have cited.  Where are the risks to our current prosperity lurking? Robert Pringle continues his retrospective series on the Global Financial Crisis, and Karim Pakravan raises the specter of the next Minsky Moment. Through it all, Michael Lewis remains optimistic that the US at least is on track for continued growth, so we will start with the good news.

RESEARCH BY ECONVUE EXPERTS

Data Round-Up: Payroll Jobs Back on Track in October, Jobless Rate Hits New Low
Michael Lewis

Good, Great, and OK. That aptly describes today’s employment key data: payroll job gains, the jobless rate and wages, respectively.

House Tax Plan Should Stimulate Economy on the Margins
Michael Lewis 

EconVue expert Mike Lewis’ closer look at the tax reform initiative and offers some “big picture” points: A tax cut for most everyone; tax hikes on the rich; Yes, tax stimulus is a good idea and Yes, the tax plan will stimulate GDP.

Crony Capitalism Has Consequences: Opioid Distribution, Destruction and Death
David Johnson

Talk about bombshells. On October 15th, the Washington Post and 60 Minutes released a detailed and damning investigative report titled “The Drug Industry’s Triumph Over the DEA (Drug Enforcement Agency).” The report chronicles how Big Pharma and its Congressional allies orchestrated passage of legislation that has severely weakened the DEA’s ability to curtail illegal distribution of opioid drugs.   

Changing Corporate Governance in Japan
Nicholas Benes

As the initial proposer of Japan’s first Corporate Governance Code, the governance indicator for listed companies, Nicholas shares his views on foreign direct investment (FDI) in Japan in terms of corporate governance and business management systems.

The Strategic Importance of Brazil
R. Evan Ellis

EconVue expert R. Evan Ellis's article appears in Global Americans October 31, 2017. Since 2003, Chinese companies have invested $46.8 billion in Brazil across 87 projects—far more than in any other country in Latin America. Less known, however, is the fact that Brazil is increasingly becoming a significant military partner for China in the region.  

The IMF and the Minsky Moment
Karim Pakravan

The IMF and the collective group of economic and financial policymakers may be patting themselves on the back for the state of the world economy and financial markets, but these reports raise important issues that need to be addressed if we want to avoid a repeat of 2008.

10-Year Retrospective: Lesson 5, Lesson 6 , Lesson 7, 8 & 9
Robert Pringle

The final lessons on global financial crisis: Banks have not Regained Public Trust, the State has Rewarded Bad Behavior and Bad Banks & the Neglect of International Causes.

Crypto Currents
Collin Canright

A recap of articles that capture pieces of the current crypto currency economy.

STORIES IN OUR SPOTLIGHT 

World

$63 Trillion of World Debt in One Visualization
Jeff Desjardins 10/27/2017 VisualCapitalist

Catalans declare independence as Madrid imposes direct rule
BBC News 10/2 7/2017 

Another example of the trend towards global decentralization in politics, culture, economics, and technology. Recent arrests of Catalan leaders are likely to exacerbate this conflict.

A brighter global economy and its downside risks
Dr. Andreas Dombret 10/30/2017 Deutsche Bundesbank Eurosystem

Bundesbank speech in India: good weather doesn’t last forever. 

Puzzles in the Tokyo fixing in the forex market: Order imbalances and Bank pricing
Takatoshi Ito, Masahiro Yamada 2017 ScienceDirect

How “fixing” rates at 9:55 am increases rather than decreases volatility in Japanese markets.

US

Chart: Number of US Bank Branches 2000-2017
Driehaus Capital 10/30/2017 Twitter

You can see empty storefronts everywhere in the US. This is partially due to the closing of bank branch offices. 

Regulatory humility
Gus Hurwitz 10/25/2017 AEI

Regulation is very very hard to do right.

Repatriated earnings won’t help American workers—but taxing those earnings can
Adam Looney 10/25/2017 Brookings 

Most offshore profits are already invested in US govt securities.

US tax reform targets avoidance by multinationals
Barney Jopson 11/3/2017 FT

Not sure these politicians understand how global supply chains work. Could impact competitiveness of US firms. 

Homebuilder stocks tanking on today's tax news
Joe Weisenthal 11/2/2017 @TheStalwart Twitter

Perfect set up for a gold rush in mortgages and other market distortions before the new 500k mortgage interest deduction kicks in.

Blockchain Just Became Obsolete. The Future is Hashgraph
Justin Danneman 10/25/2017 Squawker

Facebook may soon test a ‘red envelope’ payments feature, and a new ‘breaking news’ tag for stories
Kurt Wagner 11/4/2017 Recode

#MarkZuckerberg@facebook should realize that “red envelope” payments have a very different connotation in China.

China

The biggest stock collapse in world history is set to get worse
Kana Nishizawa and Aibing Guo 10/30/2017 SMH

PetroChina woes: the biggest stock collapse in world history ($1T) is set to get worse

Caixin/Markit China PMI Comes In At 51.0 As Expected
Investing.com 10/31/2017

As expected.

The calm before the storm?
Kerry Brown 10/28/2017 Inside Story

The internal challenges China faces should not be underestimated.