EconVue Spotlight | US Irrational Exuberance vs China's Minsky Moment

The big story this past week has been the pomp and circumstance of China’s 19th Party Congress and its centerpiece, President Xi Jinping’s lengthy speech. In spite of many columns of analysis, there have been no public surprises. You’ll find my favorite article below, “Why Do We Keep Writing About Chinese Politics As If We Know More Than We Do?”

Earlier this month in Washington, I attended the rescheduled press conference  of Guo Wengui, sometimes known as Miles Kwok, but always identified as an exiled Chinese billionaire. I left early to attend another press conference at the Senate for the release of the annual report of the Congressional-Executive Commission on China, chaired by Marco Rubio. Overall, I was more impressed by Senator Rubio than Mr. Guo.

The most important China news from an economic perspective has to be the extraordinary statement by Zhou Xiaochuan, governor of the PBoC, that China might be approaching a “Minsky Moment”. John Authers at the Financial Times provides excellent commentary and warns that in spite of Friday’s market recovery, Zhou’s comments could presage further actions post-Congress.

Before he heads to China in early November, it is expected that President Trump will announce the appointment of the new chair of the Federal Reserve. Former Treasury Secretary Lawrence Summers, at a speech at Northwestern University last week, spoke about the weakness of economic models in terms of forecasting a crisis, including the FRB/US model used by the Fed since 1996. If we are having trouble understanding how our won economy works, it is even harder to sort out China’s which is based on an entirely different institutional infrastructure. 

RESEARCH BY ECONVUE EXPERTS   

Data Round-Up: Storms Blunted Sept. Home Sales; Countdown to Fed Chair Choice Underway
Michael Lewis

Hurricanes Harvey & Irma exerted some drag: total sales in the South were down -0.9%, while all other regions saw a +1.9% gain. Activity in hurricane-affected areas should rebound in coming months.

The Yellen-Trump meeting produced no new public information. FMI believes that Yellen did express her interest in a second term -- if she was going to bow out, she has had ample opportunity to issue the traditional DC “I want to spend more time with family” cover story or an “I can’t support this president" speech, which would boost her earnings on the liberal speaking circuit. By not doing either, she has set herself up for the humiliation of being “fired.”

Real GDP Growth Likely Exceeded +3% in 17Q3
Michael Lewis

With rebuilding providing continuing tailwinds in 17Q4 (and into 2018), particularly in housing and non-residential structures, 2017-H2 real growth will likely be +2¾% annualized, clearly at the high-end for the cycle.

Evaluating the Claim that Cutting Corporate Taxes Will Raise Your Wages
Robert Shapiro

Real disputes among professional economists rarely make their way into political debates. But that’s what’s happened with the issue of whether the Trump administration’s proposal to cut the corporate tax rate from 35 percent to 20 percent would mainly benefit shareholders or workers. Both sides make coherent arguments – but in the end, the evidence supports the proposal’s opponents.

Moving at the Speed of Medicine Part II: Taking Systemness to the Next Level
David Johnson

In post-reform healthcare, quality, efficiency and service increasingly define health system success. This requires efficient coordinated systems working across multiple service lines to deliver better outcomes, lower costs and enhanced customer experience.

Collaboration: Blockchain
Collin Canright

Collaboration between banks and FinTech startups came to focus as financial media expanded on the need for collaboration, and a blockchain summit provided some cogent examples.

10-Year Retrospective: Lesson 4 | People Know Injustice When They See It
Robert Pringle

The countries worst affected by the financial crisis, the United States and especially the United Kingdom, have since experienced severe political turbulence. I believe this can be directly traced back to the financial crisis and the way it was dealt with by governments, central banks and the financial elite.

STORIES IN OUR SPOTLIGHT 

World

A political shadow looms over the world economy
Martin Wolf 10/13/2017 FT

Why Productivity Growth is Faltering in Aging Europe and Japan
IMFBlog 2017

Japan’s Birthrate Drops Below 1 Million
Nippon 10/4/2017

Devastating demographics, and 315,000 fewer births than the previous year

Global Economy’s Stubborn Reality: Plenty of Work, Not Enough Pay
Peter S. Goodman  and  Jonathan Soble 10/ 7/2017 NYT

Weak demand, no inflation

What Are the Secrets of the German Economy — and Should We Steal Them?
Stephen J. Dubner and Greg Rosalsky 10/11/2017 Freakonomics (Radio Stream with transcript)

The U.S. lost 5mil manufacturing jobs since 2000. Germany kept — maybe even added — mfg. jobs. What's their secret?

Sebastian Kurz's audacious gamble to lead Austria pays off
Philip Oltermann 10/15/2017 The Guardian

US

Why “Full” Employment is an Empty Promise
Karen Petrou 9/28/2017 EconomicEquality.blog

Stuck! The Law and Economics of Residential Stability
David Schleicher 1/9/2017 Yale and SSRN

...local govts more interested in local population stability...either generated or did not push back against falling mobility rates.

Retiring baby boomers are going to have a huge impact on the economy
Stephen McBride 9/14/2017 World Economic Forum

Consumption falls by more than a third for retirees.

U.S. buyers favor iPhone 7 over 8: research
Supantha Mukherjee,  Tanya Agrawal 10/16/2017 Reuters

Could it be that the new features aren't worth the price? Facial recognition has flaws.

China

Why Do We Keep Writing About Chinese Politics As if We Know More Than We Do?
Jessica Batke and Oliver Melton 10/16/2017 ChinaFile

China’s Xi Approaches a New Term With a Souring Taste for Markets
Lingling Wei 10/16/2017 WSJ

The very definition of kicking the can down the road.

Strategist Chovanec Says China's Problems Aren't Fixed
Patrick Chovanec 10/19/2017 Bloomberg (Video)

Not letting the market do its job.

Financial instability in China: Possible pathways and their likelihood
Victor Shih 10/20/2017 MERICS China Monitor