Archive for May, 2015

JP Morgan is trying to get consumer and economy insights from big data

May 22, 2015

This is an interesting development.

JP Morgan has mined tons of data on its customers and now trying to get insights from various patterns:

What if banks could tap into their vast network of consumer and business accounts to ferret out signals about where the economy is headed? 

J.P. Morgan Chase is doing just that with the launch of a new institute that uses “big data”in analyzing hundreds of thousands of accounts for clues about income and spending patterns. The institute’s first report, released Wednesday, offers a deep dive into consumer finances and shows that income and spending remains volatile for the broad middle class, not just the poor.

Researchers tracked the spending and income patterns of 100,000 randomly selected individuals from a sample of 2.5 million accounts at the bank over a 27-month period ended last December. Among its findings: While two in five individuals saw their income vary by at least 30% from one month to another, three out of five individuals saw their spending vary by at least 30%.

The potential dividends from building this data asset aren’t lost on Diana Farrell, the institute’s chief executive. She learned first-hand about the need for real-time information about household financial behavior as a top economic adviser to President Barack Obama in 2009 and 2010.

“I can’t tell you how frightening it was to be in the middle of the debacle of the recession and not have a good understanding of what was happening in the household sector,” she said. “We were just starving for real-time information.”

J.P. Morgan plans to build out its dataset so that it can look back historically, she said. The analyses of account data, which are stripped of any identifying information for bank customers, could help give insight into what Americans did last fall with their gasoline savings, for example.

Other findings from the institute’s first run through its data lab:

Monday is the top spending day of the week and Sunday is the lowest. Americans spend three times as much on a Monday as they do on Sunday.

Excluding Tax Day, the single biggest day for consumer spending last year fell on March 3, the Monday that followed the single highest earning day of the year, Feb. 28.

The top 12 days for spending at restaurants and bars fell between Feb. 14 and May 11.

Ms. Farrell said it isn’t yet clear how to explain some of those statistics, so stay tuned.

Monday the highest spending day and Sunday the lowest. That is strange. One would imagine max spending on Sat and Sun. Monday is a sad day for most and may be people spend the most to get rid of sadness on that day..

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The Fed Takes a Beating on Amazon’s Best-Sellers List

May 22, 2015

Interesting point by  of Mises.

He shows that books on Federal Reserve and its revered chair have taken a beating in rankings:

Interestingly, Amazon’s list of best sellers in the “monetary policy” category is a veritable parade of anti-Fed and anti-central bank books. Having not read all of them, I certainly can’t endorse all of them, and many of them surely contain questionable economics and fanciful claims about central banks. (Jim Grant’s great new book is in there, though.)

On the other hand, the fact that such books dominate the book sales in this category tells us a thing or two about how the near consensus of approval once enjoyed by the Fed (and other Western central banks) is long gone — thanks largely to Ron Paul’s 2008 campaign. Had we a list like this from 10 or 15 years ago, it probably would have been dominated by books like Bob Woodward’sMaestro, which basically made the case that Alan Greenspan was an inimitable genius. (You can pick up a hardback copy of Maestro for one cent, by the way.

🙂

 

Swiss monetary policy facts… and fiction

May 22, 2015

Trying times for SNB. Jean-Pierre Danthine of the central bank defends its policies.

In one if the myths it says central bank does not have unlimited powers as it is imagined:

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Behavioural development economics: A new approach to policy interventions

May 22, 2015

WB scholars explain the key findings of the 2015 World Development Report which focused on behavioral insights.

Economists typically assume people behave in a rational and self-interested way, making standard models limited in their explanatory power. This column argues that psychological and sociological factors – though usually ignored in economic models – affect decision-making. The findings, drawn from the World Development Report, further suggest that better behavioural understanding could subsequently aid development efforts.

They look at three insights:

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ATM usage declines in India..

May 22, 2015

The overall numbers have risen but averages are falling as suggested in this article.

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How IDFC is transitioning to a bank and what to expect?

May 22, 2015

Personally, I think IDFC was made into a bank a wee bit too early. Given how China and even India is pushing new development financial institutions to fund infra, we might have to soon look at domestic front too. We actually might need a few more IDFCs in future.  Anyways, nothing can be done now. In finance, we have to go in circles and keep pulling out old wine in new bottle.

In this interview, IDFC chief Rajiv Lall explains how the transition is happening. Interestingly, the bank starts big from MP of all places:

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How the doyens of international banking continue to be fined for unethical practices..

May 21, 2015

Federal reserve fined major banks worth $1.8 billion yesterday.

The press release said:

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How to better teach econometrics?

May 21, 2015

Josh Angrist and Jörn-Steffen Pischke write this useful and much needed post.

They look at the pedagogy on econometrics and suggest changes:

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ECB to stop giving journalists advance copies of speeches

May 21, 2015

Gradually central banks are going backwards on the communication and transparency bit. This blog had pointed how there was an issue with speech of one of the members of ECB (one of the most independent central banks)

Now ECB has decided to act on this and decided to stop giving speech copies in advance to journalists. Though the two are not related as the reporters did not have access to the speech in this case:

The European Central Bank will no longer release in advance the speeches of its executive board members to journalists under embargo, a bank spokesman said Wednesday. The decision, which has been under consideration for several months by the ECB’s communications department, is aimed at ensuring the widest possible access to ECB speeches, the spokesman said, adding that it was becoming increasingly difficult to determine which journalists should have access to embargoed comments. ECB speeches at times contain market relevant information.

The ECB will post speeches of its board members on its website when they are scheduled to begin, without making them available to journalists ahead of time under embargo as the ECB had done for many years.

The decision, which takes effect immediately, came one day after the public release of comments by executive board member Benoit Coeuré caused a stir in financial markets. Mr. Coeuré  said the ECB would front load bond purchases under its €1.1 trillion ($1.2 trillion) quantitative easing program in May and June to account for a summer lull in bond markets.

The comments prompted a surge on Tuesday in European stock and bond prices, and cheapened the euro.

Mr. Coeure had actually made his remarks at a nonpublic event in London on Monday evening that included hedge fund managers and other investors. The ECB didn’t make the speech public until the following morning.

The problem had nothing to do with journalists having speeches under embargo, because the comments weren’t released to reporters until Tuesday morning. The ECB had intended to make Mr. Coeure’s speech available Monday night when he gave it, an ECB spokesman said Tuesday, “but an internal procedural error meant this did not happen until the morning.”

Still, the episode appeared to have accelerated the communications department’s decision to do away with embargoed releases of speeches.

A much more important thing is to stop the central bankers from talking in closed door places..

What was Osama Bin Laden’s interest in Federal Reserve?

May 21, 2015

Actually the question should have instead been “Why wouldn’t Laden be interested in Fed”? Given how he and his team masterminded  US destruction, knowledge of Federal Reserve would have been crucial. As Fed controls the financial matters not just in US but across the world as well, know how of the same would have been crucial. That is a different story on whether he knew the Fed really well or not.

So this post shows how Osama’s library has a book on Fed:

Osama bin Laden’s bookshelf included dozens of books about American power, the war on terrorism and Islam. Among them was a tract by an antisemitic author who harbored conspiracy theories about the Federal Reserve.

The Office of the Director of National Intelligence on Wednesday released the listof hundreds of books, reports and other documents found during the 2011 raid on bin Laden’s compound in Pakistan. Several of the items had economic themes.

Among the documents was a letter “to the American people,” in which bin Laden says the U.S. war against al Qaeda hurt the dollar. “How will you win a war whose cost is like a hurricane blowing violently at your economy and weakening your dollar?” he wrote. (In fact, the dollar did weaken after the war began, though a more experienced financial analyst might attribute that to the effects of a recession and global economic conditions. Of course, the Fed also had a hand in the dollar’s drop.)

Among the longer works in bin Laden’s compound: “Confessions of an Economic Hit Man,” a 2004 book in which economist John Perkins presents theories about how the world economic order is driven by U.S.-based institutions such as the International Monetary Fund and World Bank.

“The Secrets of the Federal Reserve” grew out of work that its late author, Eustace Mullins, said was commissioned in 1949 by the poet Ezra Pound, who backed fascists in World War II and was later held by the U.S. in a Washington mental institution. (Mullins, like Pound, published fiercely antisemitic work. He also was a Holocaust denier.) In his book on the Fed, Mullins conveys some familiar attacks on the U.S. central bank, its origins and its structure.

From the book’s foreword:

“I have sounded the toxin that the Federal Reserve System is not Federal; it has no reserves; and it is not a system at all, but rather, a criminal syndicate. From November, 1910, when the conspirators met on Jekyll Island, Georgia, to the present time, the machinations of the Federal Reserve bankers have been shrouded in secrecy. Today, that secrecy has cost the American people a three trillion dollar debt, with annual interest payments to these bankers amounting to some three hundred billion dollars per year, sums which stagger the imagination, and which in themselves are ultimately unpayable. Officials of the Federal Reserve System routinely issue remonstrances to the public, much as the Hindu fakir pipes an insistent tune to the dazed cobra which sways its head before him, not to resolve the situation, but to prevent it from striking him.”

The book is 208 pages in hardcover, 224 in paperback, and posted in full as a PDF online. No word on whether bin Laden actually read any of it.

Hmmm.. might be an interesting read..

 

Why growing central banker powers are such a problem and need to be curbed..

May 20, 2015

It is not just growing power of actions of central banks/bankers which are a problem. The impact of their words and what they choose to say has become such a problem as well.

This is one such example:

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Indian PM as Mahabharata’s Abhimanyu — Will he break the chakravyuh?

May 20, 2015

Despite ME wanting to stay away from one year hype, articles keep flowing.

Here is another one by Peter Ronald deSouza of Centre for the Study of Developing Societies. He compares the Indian PM to Abhimanyu. The latter failed to break the chakravyuh which had seven circles. Extending the analogy. he points there are seven circles to Indian polity too. AS per the author, PM has managed to break the two but five still remain:

Abhimanyu was in Shubhadra’s womb when he heard Lord Krishna reveal the secret of how to enter the Chakravyuha. But he did not learn how to exit it, and that is the reason why he was finally killed in fierce battle in the heart of the enemy’s army. Not so Gandhiji, who triumphed over the Chakravyuh effortlessly. Not only was he able to enter and exit it with ease, he did so at a time and place of his choosing, dissolving it with ahimsa and creating independent India.

Jawaharlal Nehru largely designed the Chakravyuh of the modern Indian state. Even though not as easily as Gandhiji, he did succeed in entering and exiting it — democratic and secular India was the consequence. Indira Gandhi got trapped in the Chakravyuh. Like Abhimanyu, she got to the sixth circle, but was felled by the Emergency and, becoming increasingly authoritarian and paranoid, found the circles closing around her and she succumbed to the arrows from enemies both imagined and real.

We could continue preparing a report card for all the Prime Ministers and their Chakravyuhas but the coming anniversary of Modi’s first year in office is an opportunity to speculate on his chances of successfully negotiating the Chakravyuha of government.

Abhimanyu heard Krishna saying that the trick was to attack and destroy the soldiers to the left and to the right, so that irrespective of which way the circle turned, one would be able to enter it. The Prime Minister has attacked the politics on the Left but is not quite decisive in his support for the economic policies of the Right. While the Left is rebelling against his social and cultural policies, the Right is beginning to grumble that nothing has changed on the economic front. ‘Nothing is changed on the ground’ said Mr. Deepak Parekh.

In the Mahabharata, the Chakravyuh was a seven-spiralled, impenetrable battle formation. Let us see what the seven circles of Indian polity are.

There is a gross error here. Abhimanyu heard the chakravyuh breaking story from his father Arjuna and not his uncle Krishna.

So what are the seven circles?

  1. Foreign Policy
  2. Political coalition of governance
  3. Instruments of governance
  4. Respect for democratic and parliamentary institutions
  5. Public discourse of a plural society
  6. political philosophy
  7. Personal ethics

As per the author first two Foreign policy and political coalition has been conquered. The rest five remain.

Hmm…One can have his own circles here. 2, 3 and 4 can be clubbed as one and things like economics etc can be added.

Nice bit. In the end may be nothing emerges from this one year noise, But then one is getting so many different perspectives to look at such things..

Indian Liberals — a digital library of all Indian liberals

May 20, 2015

Interesting website of Indian Liberals:

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The several U-turns of the NDA government..

May 20, 2015

Rohit Nigam has done a great job of summing most of them. For all you know, the current govt must actually be thanking UPA govt for starting some policies. But while in opposition NDA criticised these policies severely only to do a U-turn while being in power. And then some experts think we should thank NDA for doing a Uturn and not thanking UPA for the actual turn.

There is a huge heated discussion over whether current PM has delivered in one year or not. The obsession over such things will never die and only getting shriller with each passing day. The discussions are not over what Indian mango man has gained/benefited but whether the current PM has delivered over its promises. The two are connected but first one is more real and second is just about rhetoric and announcements. And then what is the big deal if the PM has delivered. After all he has been elected for the job. Why go overboard on it?

Why can’t govts be more humble and respectful towards opposition and vice-versa.

Less than 4% companies bagged 77% of FII flows since FY10..

May 20, 2015

Finance Textbooks tell you over and over again how opening of financial markets lead to resources going to the small and needy. The companies get listed  and how foreign capital helps these companies get access to capital and grow. Right. Wrong.

This analysis shows just about 4% of companies received nearly 80% of FII flows since 2010:

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Reviving the litchi fruit before it becomes a symbol of inequality

May 20, 2015

It was just shocking to hear prices of litchis costing Rs 250 per kg in Bangalore.  The prices of fruits have increased significantly in last years. So much so, one wonders whether mango people will be able to consume mangoes and other fruits in future? Or fruit consumption like Picassos, will be seen as a sign of inequality in future?

Surinder Sud has an article on improving litchi fruit’s domestic trade and enhance India’s share in the global litchi market. Leave global markets, first make it accessible and affordable for domestic consumers:

is one of those fruits that don’t get as much attention as they should. It has substantial export potential, much of which remains untapped. Its domestic marketing, too, is riddled with formidable problems – primarily because of its transient shelf life – which are detrimental to both the producers and consumers.

India enjoys some inherent advantages over other major litchi exporting countries in terms of geographic location and the timing of the fruit availability. Besides, the country also grows some good quality litchis with distinct flavour and high pulp-to-stone ratio, which are preferred in foreign markets. Indian litchis are harvested between mid-April and June-end when good quality stuff is not available from any other litchi exporting country, barring Thailand. It doesn’t, therefore, have to compete with countries such as Madagascar, South Africa and Australia, where the litchi crop is marketed between November and February. Nor does it need to vie with Israel, where litchi is harvested from July to October. This leaves the vast litchi markets in the Gulf and Europe for India to exploit, especially during the summer.

However, a lot of constraints need to be overcome to enhance India’s share in the as also to improve its domestic trade. Thanks to its highly perishable nature, litchi needs specialised handling and transportation to ensure its prompt marketing and consumption. The paucity of infrastructure of roads, cold stores, reefer vans and other components of the cold chain management is one of the biggest hurdles in the smooth internal and external trade of litchi. Experts from the Muzaffarpur (Bihar)-based (NRCL) feel that these problems need immediate attention. There is also a need for pack-houses at or near airports for the proper pre-shipment treatment of export consignments. The other limiting factors include poor pre- and post-harvest fruit handling at the field level and the unavailability of reliable market intelligence to the producers.

Commercial production of litchi has traditionally been confined to areas such as Bihar, Uttarakhand, West Bengal and Jharkhand. alone, in fact, accounts for nearly half of the country’s total litchi output. In recent years, litchi cultivation has begun to spread to non-traditional litchi growing areas such as Punjab, Himachal Pradesh, Assam, Tripura and Odisha. Moreover, some of these states have recorded higher crop productivity than that in the conventional litchi belt. The average per hectare output of litchi in Punjab in 2012-13, for instance, was estimated at over 15 tonnes, which was almost double of the output in Bihar. Besides, litchi grown in the Gurdaspur and Hoshiarpur areas of Punjab can be exported from the international airport in Amritsar.

Standard stuff on agriculture likely to standard ignorance. Agri in India should be promoted as aggressively as Make in India..

Kinnaur’s curse? Environmental threat from Hydroelectric projects

May 19, 2015

Interesting article which takes you to the perennial debate between environment and development.

This article is on Kinnaur in Himachal Pradesh:

Kinnaur, one of Himachal Pradesh’s most ecologically fragile regions, is under threat from widespread construction activity for hydroelectric power projects. Landslides have become a common occurrence putting lives of villagers to severe environmental risk.

Are lessons being learnt from several environment disasters?

Averting Financial Crises: Advice from Classical Economists (Thornton and Bagehot)

May 19, 2015

Superb article on financial history by Thomas Humphrey of Richmond Fed.

He reviews the basic ideas of Thornton and Bagehot on lender of last resort (LOLR) and then sees how Fed policy fits within those ideas:

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Where does Modinomics fit amidst various econ schools?

May 19, 2015

Brilliant post by Prof Mahesh Kulkarni.

He looks at various policies started by the new govt and tries to fit them into the economics schools:

What is Modinomics? Classical, neo-classical, monetarist, supply sider, demand sider, Austrian? An analysis based on different economic theories.

The 2014 verdict was understandably an endorsement of both the Hindu political right and the economic right as much as rejection of rampant crony socialism under the UPA. Expectedly, there was anticipation that Prime Minister Modi would summarily put in place the reform measures to stimulate the mired economic growth. Barring perhaps P.V. Narasimha Rao (circumstance-motivated) and A.B. Vajpayee (in part ideologically driven), no other Indian Prime Minister has been identified with the economic right as much as Modi.

Intriguingly, the bequest of past governments is defined by the scale of State involvement in the economy rather than the measure of State withdrawal. Implied in the verdict of 2014 was an increasing space for supply siders in the policy machinery. However, economic gestures originating from the government in the last 12 months perplex and mystify both friends and critics alike. Incontestably, the direction of reforms is unambiguous, yet the relatively leisurely tempo seems annoying. What is unanswered is this question: Can “Modinomics” be slotted in any particular economic school of thought?

There is a nice table which lists policies against the school of thought. As expected, it is really difficult to sum them as one majors school:

Any attempt to situate Modinomics reveals it to be in differing shades of grey. To paraphrase the late Singapore supremo Lee Kuan Yew, economic policies cannot be a prisoner to theory. Pragmatism aligns economic policy to favourable political outcomes. Past experiences do not assure electorally favourable outcomes in many instances, be it 1996 or 2004. It would therefore be pointless in trying to pigeonhole Modinomics into a single stream of economic thought.

Our table is an attempt to locate the economic policy measures under different ideological schools.

Narendra Modi has started a process of shifting Indian political economic thought towards the right. Nonetheless, there may not be a Thatcher’s Hayek moment in the House of Commons or Nehruvian declaration on socialism in the Avadi session of the Congress in 1955. In a long arduous journey, it would be unfair to expect early outcomes. What is likely, however, is that the journey might culminate perhaps at a near-distant horizon, and an Indian Prime Minister might generate sufficient political consensus to remove “socialist” from the preamble of Indian constitution. That moment would finally disenthrall India from the Nehru-Gandhi brand of crony socialism.

Superb stuff. Much better than all the noisy articles on completion of one year..

Is neoclassical economics teaching making students unethical? Atleast some think so..

May 19, 2015

So far the economics academia has ignored all calls to make changes in the economics discipline. The mainstream thinking continues to create barriers and prevent the discipline to become more pluralistic.

But articles like these should make them sit up and note:

The spate of financial scandals that are rocking Chile have stirred a wholesome debate in the country on the importance of ethics in the teaching of economics. 

The Pontifical Catholic University of Chile’s economics and administration faculty has been under the spotlight since three of its former students, previously hailed as ‘star students’, were prosecuted and jailed for a week in March pending trial for tax fraud and other financial crimes.

In the past few years, other well-known Catholic University economics graduates were also charged for collusion, market manipulation and cheating on clients’ credit lines. The faculty of economics and administration at the Catholic University “rejects this sort of behaviour… that muddies the reputation of several thousands of economists”, stated José Miguel Sánchez, dean of that faculty, in a letter to the daily El Mercurio.

The deans of economics of five main universities interviewed by the financial daily Diario Financiero also condemned the wrong-doings and lay the blame on the persons under prosecution, not on the institutions.

The deans also have explained in a series of press reports how their faculties have reacted to the situation and reflected on whether the way economics is taught in Chile may have a bearing on the financial crimes under investigation. “Though we cannot be held responsible for the things our graduates do, we do have the responsibility to give them tools to sort out the good from the bad and to make ethical choices in their professional future,” Sánchez told University World News.  “Once they graduate they will make their own decisions but at least we should get them into the habit of asking themselves about the ethical implications of their actions, the sense and purpose of their decisions, who may be affected and how.”

Ethics to be made compulsory in economics teaching:

At the Catholic University, the faculty of economics offers elective courses on business ethics. A curriculum reform, now under way, will include an obligatory course on applied ethics. Teachers will be prompted to include ethical considerations in all the subjects they teach. In contrast, deans of other leading universities such as the University of Chile, Adolfo Ibáñez, Los Andes and Diego Portales, say that they do not need to make reforms, claiming that ethics in business permeates their economics curriculum.

Some think the neoclassical school is part of the reason:

Neo-classical economics, the prevailing economic theory in Chile and in most countries, is cited by some Chilean economists as a factor behind the financial crimes that have unleashed a political crisis in Chile. President of Chile Michelle Bachelet hopes to address the turbulence by taking stiff measures against conflicts of interest, influence peddling and corruption.

“All schools teach [the same] matrix, which centres on maximising profits and reducing costs. In this logic, tax avoidance through illegal means may be regarded by some as a valid tool,” Gonzalo Durán, an economist from the NGO Fundación SOL and a former Catholic University student, told the online news service El Dínamo.

Nicolás Grau, assistant professor of economics at the University of Chile, elaborates: “Telling students of economics that the aim of enterprises and individuals is to make money for themselves excludes cooperation and social wellbeing and has a bearing on what students may consider right or wrong.”

Gonzalo Polanco, director of the Tax Studies Centre of the University of Chile, adds that “the prevailing extremely competitive environment leads companies to hire professionals who are ready to reduce their tax burden or make money in any way, not those who shy away from ethically questionable practices”.

The unending series of financial scandals have worried students of economics. They are discussing them openly on their campuses while teachers are using them as examples of the need to reinforce professional and business ethics.

At the University of Chile, vocal groups are pressing for changes in the way economics is taught. Among other things, they are canvassing for more diverse perspectives and for more attention to be paid to the interaction between economics, society and politics.

What does one even say to all these developments? How far will all this go?


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