Author: ColinTwiggs

From Joachim Fels, global economic advisor at PIMCO:

….The downside risks to the global economy today are really concentrated in emerging markets. After August, investors have been watching developments in China with particular caution. I should first note that our baseline view for China sees below-consensus growth, along with policy leadership with the will and the wallet to manage the slowdown. Indeed, policy actions in the past month or so have mollified markets to some degree. But there are a lot of uncertainties. China’s policymakers have the tools, but they must manage a tricky transition, and as global investors we are left wondering if we have enough transparency into the details. The tail risk remains of a really hard landing in China, perhaps a very sharp devaluation. It’s not our baseline view, but an important risk to monitor.

Source: Plodding Along A Discussion of Todays Global Economy | PIMCO

From Matt Siegel at Reuters:

A major cyber-attack against Australia’s Bureau of Meteorology that may have compromised potentially sensitive national security information is being blamed on China, the Australian Broadcasting Corporation (ABC) reported on Wednesday.

The Bureau of Meteorology owns one of Australia’s largest supercomputers and the attack, which the ABC said occurred in recent days, may have allowed those responsible access to the Department of Defense through a linked network.

The ABC, citing several unidentified sources with knowledge of the “massive” breach, placed the blame on China, which has in the past been accused of hacking sensitive Australian government computer systems.

Source: China behind ‘massive’ cyber-attack on Australian government: ABC | Reuters

From Brian Whitmore at RFE/RL:

….”Russia’s new course means it is free from any and all influences and restrictions,” Frolov wrote. “This freedom means that Russia does not need to abide by international law…and that Russia’s claims to a leading role in the world cannot be contained.”

The cost of this diplomacy of liberation, of course, is increasing international isolation and ostracism. For the time being, as Frolov notes, Moscow has been able to “divorce foreign policy from economic interests and capabilities.” But in the long run, the current course is not sustainable.

Nevertheless, isolated and resentful powers — particularly isolated and resentful powers with nuclear weapons, large militaries, and vast natural resources — can cause a lot of damage.

Which means that, in the short term, we are in for what Ben Judah, author of the book Fragile Empire: How Russia Fell In And Out Of Love With Vladimir Putin, calls “our violent new normal.” “The unthinkable happens, is quickly accepted, and fades obscure into a darkening background,” Judah wrote recently in Prospect. “Grey wars, is what we have now: creeping skirmishes, proxy clashes, hybrid assaults and dogfights with Russia.”

Source: Russia’s (Not So) Splendid Isolation

From Simon Johnson, professor at MIT Sloan and former chief economist at the IMF:

The world’s largest banks remain too big to fail, and this is likely to have dire consequences in the near future.

….Unfortunately, there are three flaws in the FSB’s [Financial Stability Board] framework that will prevent it from being effectively applied to large global banks.

First, by definition, global banks operate across borders, and there is no agreement among different national authorities regarding how to respond in a crisis. There is, arguably, better communication than there was before 2008, but when the chips are down, this will be worth little. The countries involved have different legal rules, different procedures for protecting local assets, and different court systems. A major international treaty could address all of this, but the immediate prospects for one are nonexistent.

Second, the FSB proposes to require a Total Loss Absorbing Capacity for all large banks. But TLAC is just jargon for saying that these banks should fund themselves with both equity and “bail-in-able debt” – debt that can be converted to equity (or wiped out) when there is an official resolution event. All this really means is that some debt can fall dramatically in value when government officials pull the trigger.

This may seem elegant in theory, but it is completely unworkable in practice. In any real crisis, the authorities’ real fear is that the fall in one asset price (the equity value of big banks) will cause other asset-price declines – leading to a broader contraction of credit. The idea of “loss-absorbing debt” is an oxymoron.

Third, what really matters for financial systems is the extent of equity financing – including how much equity banks are required to have. Current levels are so low – debt funds around 95% of total credit exposure in most big US banks (and a slightly higher share in big European banks) – that banks’ equity can be substantially wiped out by even moderate negative shocks.

The good news is that the Fed increasingly seems to be taking this point on board – and inching toward higher capital requirements for the biggest banks.

Source: Failure at the Financial Stability Board by Simon Johnson – Project Syndicate

From Tim Fernholz:

….empirical studies suggest that poverty and inequality aren’t behind terror attacks. In the wake of the 9/11 attacks, Alan Krueger, the Princeton economist and future Obama administration official, examined databases of terror attacks to identify trends among the participants. Surprisingly, he found most were well-educated and not poor.

….Later studies confirmed these effects: A 2006 study (pdf) using a broader time range also found that poor countries did not produce more terrorists. By 2007, Krueger had also looked at 311 foreign combatants captured by the US in Iraq, and concluded “that countries with a higher GDP per capita were actually more likely to have their citizens involved in the insurgency than were poorer countries.”

Read more at It’s not the poverty in the Middle East that’s driving terrorism—it’s the politics – Quartz

From Steven Pearlstein

….while students are paying more, they are getting less, at least as measured by learning outcomes, intellectual engagement, time with professors and graduation rates. And although students are working more hours at outside jobs and receiving more tuition assistance, student debt now exceeds credit card debt and has become something of a national obsession.

….While faculty critics have made sport of pointing out the proliferation of assistant provosts or the soaring salaries of college presidents, these don’t represent most new spending. What does is the growth in the number and pay of non-teaching professionals in areas such as academic and psychological counseling, security, information technology, fundraising, accreditation and government compliance.

….Few students or parents realize that tuition doesn’t just pay for faculty members to teach. It also pays for their research…… Teaching loads at research universities have declined almost 50 percent in the past 30 years, according to data compiled for the American Council of Trustees and Alumni. This doesn’t necessarily mean professors aren’t working as hard — surveys show they’re working harder and under more pressure than ever. Rather, says former Mason provost Peter Stearns, it reflects a deliberate shift in focus as universities compete for big-name professors by promising lighter teaching loads and more time for research.

Read more at Four tough things universities should do to rein in costs – The Washington Post