EconVue Spotlight | A New Era for Central Banks in 2018

posted by Lyric Hughes Hale on September 16, 2017 - 12:41pm

In spite of negative wage and manufacturing data, another North Korean missile launch, and Britain moving to its highest possible threat level, financial markets remain calm. Indeed, many forecasters remain optimistic about global growth. The Council on Foreign Relations hosted a back-to-school panel on the world economy this past week, and the mood was upbeat. But especially here in the Midwest, why aren’t we feeling more exuberant?

US equity markets have boomed since 2007, but since that period stock market participation has fallen from about 65% to 52%. That means that about half the population did not participate in this creation of new wealth totaling $15 trillion. For shareholder households, this means an average increase in wealth of $50,000 per person. Many blame both asset price inflation and the inexorable increase in US income inequality on the ultra-accommodative monetary policies of the Federal Reserve. 

Thursday evening the Chicago Financial Forum, an informal group of economists and investors who have met every month or so for more than thirty years, invited Karen Petrou of Federal Financial Analytics to share her views.  She sounded a clear warning that although the Fed should be credited with avoiding disaster during the financial crisis, its policies persisted for too long at the expense of those who could least afford it. She says further that as the Fed Board changes its composition in early 2018, it could be faced with its biggest political crisis since its founding in 1913. Karen’s remarks can be found here and should be at the top of your weekend reading list.  

Other key issues discussed by our EconVue experts below include whether or not tax reform will become a reality before 2018, economic insecurity in Latin America, US banking regulation, corporate governance in Japan, and the economics of the fight against cancer. And as always, I’ve included a perhaps too-lengthy list of intriguing links to content from other sources.

Finally, this coming week President Trump will attend his first meeting of the UN General Assembly in New York, which you will be able to view here.  Many heads of state will be in town next week, and the Council on Foreign Relations will be livecasting their conversations with for example, Paul Kagame, President of Rwanda, Michelle Bachelet, President of Chile, Mohammad Ashraf Ghani, President of Afghanistan, and Shahid Khaqan Abbasi, Prime Minister of Pakistan, David Sanger of the New York Times presiding. This is a rare opportunity to watch these leaders up close, as they converse with experts in their field.  No registration is required; here is the complete CFR schedule.


Solid Chance for Major Tax Reforms by Year-End
Michael Lewis

Though there are potential pitfalls, FMI believes there is a solid chance that a significant deal will be reached this year, even if it looks somewhat different from the proposals Trump and House Speaker Paul Ryan released during the campaign.

The Three Choices for Tax Reform
Robert Shapiro

Trump administration officials and GOP leaders in Congress are still putting together their tax plan. Nevertheless, the early signs point to decisions that could sink the project or produce changes that would jeopardize economic growth.

Gangs, Guns, Drugs and Islamic Foreign Fighters: Security Challenges in Trinidad and Tobago
R. Evan Ellis

The strategic location of Trinidad and Tobago vis-à-vis Venezuela, the Caribbean, and regional oil reserves make the country of strategic importance to the United States. It is important that the U.S. not overlook the very serious problems occurring in its not-so-distant partner.

China, Russia Increase Leverage in Venezuela Amid Crisis
R. Evan Ellis

The most important question regarding the unfolding crisis in Venezuela is not whether U.S. sanctions and international pressures will force its populist regime to restore democracy. That will not happen anytime soon. Rather, it is whether the Venezuelan regime will be able to successfully transition power to a more rationally managed authoritarian government, backed by Russian and Chinese resources, that protects those who have systematically looted the country, while providing a sufficient façade of democratic process and compromise that a weary and distracted international community lends it legitimacy.

Collin Canright

The Bank for International Settlements (BIS), often described as the central bank for central banks, recently published its take on FinTech. The BIS's Basel Committee on Banking Supervision's report, "Implications of fintech developments for banks and bank supervisors," handily summarizes the changing face of banking.

Making American Banks Great Again?
Karim Pakravan

Janet Yellen, as well as Mario Draghi, the president of the European Central Bank, have stressed two points. First, there is little evidence that tougher bank regulations have caused some slowdown in credit growth. Second, even if there was some slowdown in credit growth, it is preferable to the financial system seizure that we experienced in 2008.Finally, Yellen warned against fading memories of the 2008 disaster.While banks are better capitalized than ever, regulators must remain vigilant and have the tools to prevent/mitigate another financial crisis.

Company Law Reform in Japan: Losing its Mojo?
Nicholas Benes

This year, Japan’s governance reform drive will either keep going, or run out of steam. Judging from the amendment of the Company Law that is now underway by an advisory council of the Ministry of Justice (MOJ), the latter is likely.

Battling Cancer: Partnering to Make Headway Against Medicine’s Toughest Foe
David Johnson

Almost 40% of Americans will receive a cancer diagnosis during their lifetime. Most cancers are chronic conditions that manifest as people age. Once it strikes, treating cancer is expensive, iterative, prolonged, multi-faceted and unpredictable. Organizing and delivering effective cancer care at the community level offers the greatest near-term benefit for extending and enhancing patients’ lives. As with all chronic diseases, meaningful progress against cancer combines evidenced-based treatments with coordinated patient-centric delivery. This requires logistical, technological and organizational expertise.



A New Way to Learn Economics
John Cassidy 9/11/2017 New Yorker

Fed told public spending can lift ailing economies   
Sam Fleming 8/ 26/2017 FT

Since monetary policy has nowhere to go, time to try extreme fiscal policy?

Decline in Labor-Force Participation Not Due to Disability Programs
Kathy Ruffing 8/25/2017 Center on Budget and Policy Priorities

Despite political rhetoric, there is little support for the claim that growth in disability programs has caused a decline in labor-force participation.

The Real Reason the U.S. Has Employer-Sponsored Health Insurance
Aaron E. Carroll 9/5/2017 NY Times

America needs its unions more than ever
Lawrence Summers 9/3/2017 FT

Why our current prosperity is not widely shared.

To Understand Rising Inequality, Consider the Janitors at Two Top Companies, Then and Now
Neil Irwin 9/3/2017 NY Times

Panic in the US treasury bill market causes disquiet
Gillian Tett 9/10/2017 FT 

Markets seem outwardly calm, but uncertainty--and fragility--is building. 

CBOE Implied Correlation Index Highlights Rising Risks For Investors
Callum Thomas 9/4/2017 SeeItMarket

Republican Tax Plan Poses Risk to U.S. Bond Market
Vipal Monga 8/30/2017 WSJ

Tax cuts meant to boost the economy could end up creating wake turbulence in bond markets.

Is The 'Shadow Insurance' Business As Dangerous As The 'Shadow Bank' Of The Financial Crisis?
Vineer Bhansali 9/7/2017 Forbes

Given looming insurance losses, a very sobering read.

A darker side of hypermobility
Scott A Cohen,  Stefan Gössling 8/3/2015 Sage

How constant (50%+) business travel affects our identities, and our health.


Brace yourself for a market correction in two months, analysts warn
Silvia Amaro 9/5/2017 CNBC

David Marsh's interview in this CNBC segment is superb. Why is the Yen a safe haven while Japan is in the crosshairs?

These are the world’s fastest-growing economies in 2017
Alex Gray 6/9/2017 World Economic Forum

These are the lost lessons of the Great Recession
Mohamed A. El-Erian 8/21/2017 Weforum and Project Syndicate

Chart of world GDP growth, developed vs developing economies.

Interview With Bank of Mexico Gov. Agustín Carstens
WSJ 8/29/2017

Soon to be the head of the BIS.

Netherlands is world number two in agricultural exports by using greenhouses and new technology
Brian Wang 9/3/2017 NextBigFuture

Would not have guessed that Holland trails only the US in food exports (by value).

Demonetisation hit India’s poor very hard, Raghuram Rajan tells Times of India 9/3/2017

India's reforms come at a price.

Why is Bulgaria's population falling off a cliff?
Ruth Alexander 9/7/2017 BBC

Can a Giant Science Fair Transform Kazakhstan’s Economy?
David Segal 9/9/2017 NY Times

Chinese-Iranian Mutual Strategic Perceptions
Anoushiravan Ehteshami,  Niv Horesh, and  Ruike Xu 8/9/2017 University of Chicago

After the US ignored China in terms of Afghanistan, a topic that bears more discussion.

What machines can tell from your face
Economist 9/9/2017


China has banned ICOs
Jon Russell 9/4/2017 TechCrunch

And cryptocurrencies are feeling the pain.

China to Curb Use of Shares as Collateral Amid Risk Concerns
Zhu Liangtao and Leng Cheng 9/11/2017 Caixin

Time to Rethink Chinese Oil Demand?
Damien Ma 9/5/2017 MacroPolo

China has reached peak oil. What does this mean for the global economy?

Metals prices are saying a global recovery is afoot
FT China 9/1/2017

A Pillar of Chinese Growth Starts to Show Cracks
Nathaniel Taplin 8/18/17 WSJ

Real estate prices especially in the interior are faltering. Effect on commodity prices?

The Chinese Saving Rate: Long-Term Care Risks, Family Insurance, and Demographics
Ayşe İmrohoroğlu and Kai Zhao June 2017 University of Connecticut

Half of the increase in China's savings rate since 1980 is due to a combination of the 1-child policy and the loss of a social safety net for the aged.