EconVue Spotlight | Is the Global Financial Crisis Finally Over?

What a week it was!  Equity markets and cryptocurrencies, both of which appeared to defy the laws of gravity, and the US dollar took a dive.  However, the story of synchronized global growth does not seem to have changed. Have we finally escaped the long dark shadow cast in 2008?  Renowned Japanese economy expert Takatoshi Ito thinks that things are changing at the Bank of Japan, the institution that invented and led the world in quantitative easing. This could be a signal of things to come in a new global monetary policy environment.

Interest rates might be rising in 2018, but US corporates have received a gift in the form of a massive tax cut.  EconVue expert Marsha Vande Berg explores whether or not this will be a missed opportunity, and hopes that corporate boards will eschew the easy path of share buybacks and dividends to support new technologies and educate employees. Andrew Batson’s excellent blog looks at wealth distribution from another perspective, economic history. He discusses a new book about a contemporary rival to Karl Marx, who envisioned a way to empower workers without centralizing the ownership of property. This debate is likely to last another hundred years. 

In spite of lagging wages, US consumption is strong, and in view of full employment is likely to continue at its current pace. EconVue expert Michael Lewis says that in spite of auto and student loans, consumers are not overextended. Mysteries remain-why hasn’t full employment pushed up wages? Perhaps the two are unrelated. The US industrial base is similarly underextended: capacity utilization in US industry is still 2% below its long term average.

There are clouds however, especially in health care.  Amazon’s new venture in this space began the stock market rout last week. In the long run, misallocation of health care dollars in the US is a problem that must be solved, and innovative technology rather than regulation is bound to be the answer. Regular contributor David Johnson’s report below describes the ills and some possible cures.

What should we be watching for in 2018?  Mobile payments in the US catching up with China, and energy storage as a booming industry.  Australian EconVue expert Saul Eslake provides his macro insights for 2018, notably China as it undergoes political transformation. He takes a sanguine view and predicts overall economic stability.

See these and other stories below.

RESEARCH BY ECONVUE EXPERTS

What to Watch for in 2018 
Saul Eslake 

Saul's ten things that will shape the global and Australian economies in 2018.

US Corporate Governance/The New Tax Law Comes with Complications
Marsha Vande Berg 

While an optimistic consensus in corporate America is growing around last year’s passage of a sweeping US tax bill, corporate boards would be wise to pivot their spending deliberations to how companies can catalyze new technologies on behalf of improvements in real wages, growing jobs and educating the workforce. This should be the preference over stock buybacks and shareholder dividends if the US economy is to realize more than a one-time, feel-good growth spurt.

FMI February 2018 Economic & Investment Outlook
Michael Lewis

For 2018, Real GDP Should Grow +2.75%, Perhaps Bit More; Jobless Rate Should Fall to Record (Peacetime) Lows; Core Inflation Will Likely Breach +2% Target by Summer.

Fortress Healthcare Meanders Toward Value
David W. Johnson

On the frontlines, providers are positioning themselves to win customers by delivering higher quality care and better service more efficiently. At the rear, the battle is for clinical precision through right-care, right-setting delivery with more emphasis on integration and cost cutting than revenue maximization. 

Trump’s SOTU Economic Agenda: Self-Congratulations and Empty Threats — But It Could Be Much More
Robert Shapiro 

Trump’s economic agenda for 2018 is both largely predictable and deeply unrealisitic. With a boost from his deficit-busting tax reforms, CBO now forecasts budget deficits averaging $1 trillion per-year over the next decade (2018-2027). That tells us that Trump is virtually certain to propose deep spending cuts across most domestic areas, excluding the Pentagon.

The Mobile Mainstream
Collin Canright 

"Changing consumer preferences and behaviors are focused on ease of use, convenience, and immediacy of payment that can be obtained through the mobile channel," reports the Federal Reserve Bank of Boston in its most recent mobile payments study.

Yet the mobile experience in the mainstream of U.S. commerce hardly meets that ideal.

Moreno Reviving Ecuador's Participatory Democracy
R. Evan Ellis 

Dr. Ellis' new article on the policies and challenges of Ecuador's recently elected president Lenin Moreno, with recommendations for US policymakers.  The article emphasizes the positive steps that President Moreno has taken in reviving an inclusive, democratic discourse in his country, as well as opportunities for the US to respectfully work with him and his government, despite persistent policy differences. 

Davos and the anti-Davos Man
Karim Pakravan 

This Davos meeting could be the most consequential since the one following the financial crisis of 2008. The erosion of U.S. leadership, the concomitant rise of China’s financial and soft power, and the challenges posed to the global trade system are the background to major shifts in the global economic and financial architecture, with unpredictable consequences.

STORIES IN OUR SPOTLIGHT

The Future of U.S.-China Economic Ties: A Conversation with Erin Ennis
4/6/2017 CSIS ChinaPower Podcast

Always worth listening to US-China economic relations expert Erin Ennis about how this relationship is evolving and what US corporates can expect.

Cryptocurrencies and National Security
1/30/2018 Council on Foreign Relations

This Council on Foreign Relations article makes no mention of the possible benefits of cryptocurrencies, especially for citizens whose governments serve them poorly with weak financial institutions. All innovations create positive and negative outcomes; the positive deserve equal attention.

Triple Threat: Amazon, Berkshire, JPMorgan Rattle Health-Care Firms
Anna Wilde Mathews , Emily Glazer and Laura Stevens 1/30/2018 Wall Street Journal

Flip side? How many employees would be comfortable with their employer storing all of their health data?

Some of Marx’s earliest critics were right on the money
1/30/2018 Andrew Batson Blog

Was there a way to help workers without increasing centralization? A new book describes how Karl Marx might have got it wrong.

Technological innovation drives clean energy boom
2018 Enviromental Defense Fund study

The future requires energy storage, and this sector is growing—46% just in the past year, with projected growth of nine times by 2022, only four years away.  How much would you pay for a battery that lasts twice as long?

Higher US Treasury yields are no certainty under Basel III
Matthew C Klein 1/26/2018 Financial Times

Central bankers like to think tough regulation makes monetary policy more straightforward. Yet the Federal Reserve may find its plans to raise long-term interest rates partly stymied by the capital and liquidity rules of Basel III. Another example of how in spite of political pressures against globalization, in the financial sector at least it is inescapable.

Blockchain Technology Overview
Dylan Yaga, Peter Mell, Nik Roby & Karen Scarfone 1/2018 National Institute of Standards and Technology

A draft issued by the NIST of the U.S. Department of Commerce setting standards for blockchain technology. Great unhyped read for those of us trying to grasp what blockchain is and what it can do.

The Bank of Japan’s Moment of Truth
Takatoshi Ito 1/25/2018 Project Syndicate

Insight from Takatoshi Ito. 

Digital Identity – Why It Matters and Why It’s Important We Get It Right
1/25/2018 World Economic Forum

Large institutions will always favor identification. Privacy will become the world’s scarcest luxury, unless new technologies can overcome the inexorable trend towards personal digital identities accessible by data collectors. 

China’s VPN crackdown is about money as much as censorship
Lucy Horby 1/21/2018 Financial Times

Biggest import trading partner (chart)
1/19/2018  @NinjaEconomics

A map of each US state and their largest trading partner.  California’s is China, not Mexico.

The Apple story is about corporate bonds not cash or capex  
Alexandra Scaggs 1/18/2018 Financial Times

Apple, the world’s largest company, as a financial institution.

Baidu expands AI labs and makes key hires
Ina Fried 1/18/2018 Axios

Artificial Intelligence. We’re not there yet.

Resource-hungry China is in overdrive as it wages water wars by stealth
Brahma Chellaney 1/16/2018 South China Morning Post

The view from India: international pressure is needed to rein in Beijing’s dam-building frenzy and ensure it respects the environment and rights of downstream nations

The looming student loan default crisis is worse than we thought
Judith Scott-Clayton 1/11/2018 Brookings Institute

40% of student loans might be in default by 2023.  Since student loans are larger than credit card debt, this is significant.