Economische aanraders 03-06-2018
Economische aanraders: Veren of Lood biedt u op zondag wekelijks een inkijkje in (minstens) 10 belangrijke of informatieve artikelen en interviews die de voorafgaande 7 dagen op economisch terrein verschenen op onafhankelijke sites.
De kop is de link naar het oorspronkelijke artikel, waarvan de samenvatting of de eerste (twee) alinea’s hier gegeven worden.
Sinds december 2015 nemen we ook een paar extra links op naar artikelen die minder specialistische kennis vereisen. Deze met *** gemerkte artikelen zijn ons inziens ook interessant voor lezers met weinig basiskennis van economie.
The changing fortunes of central banking – Philipp Hartmann, Haizhou Huang, Dirk Schoenmaker
The financial crisis and subsequent low-inflation recovery forced central banks to explore novel policy options and to take on new responsibilities. This column gathers the views of leading academics and policymakers on what the expanded range of central bank policies implies for the future. Though consensus is limited, a common thread is that the economics profession has still not succeeded in integrating some main post-crisis lessons into the standard economic curriculum. Moreover, questions remain not only for monetary policy, financial stability policy and their interaction, they also touch on what the future role of the central bank should be, both in the state and in society at large.
Visa Goes Down in the UK, Chaos Ensues, Cash is Suddenly King – Don Quijones
War on Cash Suffers Setback.
For over 12 hours on Friday, shopping centers in the UK and other parts of Europe were plunged into chaos as millions of consumers were unable to use their Visa debit or credit cards at points of sale. The credit card company, which was finally able to restore normal service early Saturday morning, said it had no reason to believe the hardware failure was due to “any unauthorized access or malicious event”.
While the mayhem caused by the outage may have been short lived, it served as a stark reminder of the risks, both for consumers and retailers, of depending purely on cashless payments. In the UK, the chaos unleashed was particularly acute since it is one of the world’s most cashless economies, pipped to the post only by Canada and Sweden, as a recent study by industry analysts reported.
Europe’s future: The value of an institutional economics perspective – Nauro Campos, Jan-Egbert Sturm
Economists have discussed what to do to reform the European project and how, but have been silent on who and when. Which institutions and rules are needed and when? This column introduces a new eBook that makes the case such institutional questions are of fundamental importance for the future of Europe. The individual chapters distil the lessons from the institutional framework underpinning the Bretton Woods system and the globalisation wave that followed it.
History is Clear, Central Banks Fail to Assure Economic Stability – Richard M. Ebeling
The world has been plagued with periodic bouts of the economic rollercoaster of booms and busts, inflations and recessions, especially during the last one hundred years. The main culprits responsible for these destabilizing and disruptive episodes have been governments and their central banks. They have monopolized the control of their respective nation’s monetary and banking systems, and mismanaged them. There is really nowhere else to point other than in their direction.
Yet, to listen to some prominent and respected writers on these matters, government has been the stabilizer and free markets have been the disturber of economic order. A recent instance of this line of reasoning is a short article by Robert Skidelsky on “Why Reinvent the Monetary Wheel?” Dr. Skidelsky is the noted author of a three-volume biography of John Maynard Keynes and a leading voice on public policy issues in Great Britain.
Did macroeconomics give up on explaining recent economic history? – Simon Wren-Lewis
The debate that continues about whether a Phillips curve still exists partly reflects the situation in various countries where unemployment has fallen to levels that had previously led to rising inflation but this time wage inflation seems pretty static. In all probability this reflects two things: the existence of hidden unemployment, and that the NAIRU has fallen. See Bell and Blanchflower on both for the UK.
The idea that the NAIRU can move gradually over time leads many to argue that the Phillips curve itself becomes suspect. In this post I tried to argue this is a mistake. It is also a mistake to think that estimating the position of the NAIRU is a mugs game. It is what central banks have to do if they take a structural approach to modelling inflation (and what other reasonable approaches are there?). Which raises the question as to why analysis of how the NAIRU moves is not a more prominent part of macro.
Italy, “Safe Bonds,” and Europe’s Populist Fantasyland – Daniel Lacalle
The populist coalition in Italy has presented an “economic” program and a threat to the European Union that makes Greece look like a walk in the park.
Let us start with reality.
Italy’s economic problems are self-inflicted, not due to the Euro.
Italy has seen more governments since World War II than any other country in the European Union.
Governments of all colors have consistently promoted inefficient dinosaur “national champions” and state-owned semi-ministerial corporations at the expense of small and medium enterprises, competitiveness and growth.
Labor market rigidities remained, leaving high unemployment and differences between regions.
A perverse incentive financial system, where banks were incentivized to lend to obsolete and indebted state-owned companies in their disastrous empire-building acquisitions, inefficient municipalities, as well as finance bloated local and national government spending. This led to the highest Non-Performing Loan figure in Europe.
A nightmare legal system that makes it virtually impossible to repossess assets from bad debt, led non-performing loans through the roof and malinvestment to soar.
A thriving export and small enterprise ecosystem were constantly limited by taxation and bureaucracy. This made the thriving companies smaller and actively looking to set activities outside of Italy.
***Who Dominates Global Steel Production & Trade? – Wolf Richter
So here are the charts.
Steel tariffs are now in place, and the world is grumbling and threatening retaliation against the US. Its closest partners, such as Canada, are trying to figure out how to navigate the waters. Part of Corporate America is lobbying against it and wagging its checkbook. The other part of Corporate America — the part that has been lobbying for it — is now grinning from ear-to-ear. And the media is steeped in this melee. But just who is producing all this steel, and who is dominating this trade?
Three critical lessons from Europe’s recent mini-meltdown – Simon Black
Trying to trace the origins of the latest political crisis in Italy is like… well… trying to trace the origins of the decline of the Roman Empire.
There simply is no good starting point.
You can’t talk about the decline of Rome without a lengthy discussion of how destructive Diocletian’s Edict on Wages and Prices was in the early 4th century.
But you’d have to go further back than that and discuss all the lunatic emperors preceding him, all the way back to Caligula.
But you can’t talk about Caligula without bringing up the effects of the civil war between Octavian and Marc Antony… which was a direct result of the previous civil war between Julius Caesar and Pompeius Magnus.
Before long you’ve gone back in time more than 500 years trying to figure out why the Roman Empire collapsed.
Stock Market Borrowing at All Time High, Increasing Risk of Downdrafts – Yves Smith
I find it hard to get excited about stock market risks unless defaults on the borrowings can damage the banking/payments system, as they did in the Great Crash. This is one reason the China perma-bears have a point: even though the Chinese government has managed to do enough in the way of rescues and warnings to keep its large shadow banking system from going “boom,” the Chinese stock markets permit much higher level of borrowings than those in the West, which could make them the detonator for knock-on defaults.
The US dot-com bubble featured a high level of margin borrowing, but because the US adopted rules so that margin accounts that get underwater are closed and liquidated pronto, limiting damage to the broker-dealer, a stock market panic in the US should not have the potential to produce a credit crisis.
Why the Eurozone and the Euro Are Both Doomed – Charles Hugh Smith
Papering over the structural imbalances in the Eurozone with endless bailouts will not resolve the fundamental asymmetries.
Beneath the permanent whatever it takes “rescue” by the European Central Bank (ECB) lie fundamental asymmetries that doom the euro, the joint currency that has been the centerpiece of European unity since its introduction in 1999.
The key imbalance is between export powerhouse Germany, which generates huge trade surpluses, and its trading partners, which run large trade and budget deficits, particularly Portugal, Italy, Ireland, Greece and Spain.
Those outside of Europe may be surprised to learn that Germany’s exports are roughly equal to those of China ($1.2 trillion), even though Germany’s population of 82 million is a mere 6% of China’s 1.3 billion. Germany and China are the world’s top exporters, while the U.S. trails as a distant third.
Germany’s emphasis on exports places it in the so-called mercantilist camp, countries that depend heavily on exports for their growth and profits. Other (nonoil-exporting) nations that routinely generate large trade surpluses include China, Japan, Germany, Taiwan and the Netherlands.
“The Spark That Lights The Fire”: Oaktree Spots A $1 Trillion Opportunity In The Coming Bond Crash – Tyler Durden
Back in November, still smarting from a year he would rather forget, Russell Clark and his Horseman Capital, i.e. the “world’s most bearish hedge fund” unveiled what he would short next: according to Clark, the next major source of alpha would be shorting fallen angel bonds.
Citing a recent IMF Global Financial Report, Clark said that “US investment grade debt is very low quality, and could produce some large fallen angels [and] mutual funds are much larger in the high yield market than they used to be. [L]ow rates means the capital losses are much higher than they used to be. And that investors in high yield mutual funds are much flightier than they used to be! Essentially the IMF are telling me that if you get a large enough fallen angel, the high yield market will freak out, and volatility will spike causing volatility targeting investors to dump leveraged positions. Sounds good to me.”
One month later, in the aftermath of of Steinhoff fiasco, in which the ECB found itself long tens of millions of bonds in a company which went from investment grade to deep junk after it was revealed that it may have engaged in occasional fraud, crashing the bonds…
Beyond ESBies: safety without tranching – Jeromin Zettelmeyer, Álvaro Leandro
The euro area lacks a common safe asset, leaving banks to rely on bonds issued by their own countries and thus magnifying fiscal crises and contributing to financial fragmentation. To address this problem, an influential proposal advocates sovereign-bond backed securities, the most senior of which would play the role of safe asset. This column, which introduces a new CEPR Policy Insight, investigates whether criticism of the proposal’s reliance on securitisation is justified and compares it with alternatives that would not require tranching.
More evidence of increasing deflationary pressure on wages – NewdealDemocrat
One of my pet peeves is that economics as a discipline needs to import the entirety of learning theory from psychology, not just parlor tricks like the endowment effect. For example, learning from models.
To wit, once Jack Welch was successful in using a pay scheme at GE that ensured that a given percentage of employees would not get a raise in any given year, it was inevitable that other employers who adopt the idea until it spread throughout corporate America. And it not giving raises to a certain percentage of employees was successful, why not implement it across the board with *all* employees?
Update on the Splendid Rental Bubbles & Crashes in the US – Wolf Richter
Chicago’s rents in free-fall, Washington DC’s suddenly plunge, New York’s fall to third place. But rents soar in Southern California and other parts. Bay Area and Seattle “mixed.”
Four observations first:
The US corporate tax cut debate – Willem Buiter, Anne Sibert
In December 2017 the US federal corporate tax rate on profits over $10 million was reduced from 35% to 21%. This column examines the plausibility of the Council of Economic Advisers’ estimates of how a cut in the corporate profit tax rate would boost average household income, and argues that three other features of the corporate tax regime and the wider economy are central to determining the effects of such a cut: the deductibility of capital expenditure and of interest payments from the corporate profit tax base and the impact of the corporate tax cut on private and public consumption demand.
***Burrito Index Update: Burrito Cost Triples, Official Inflation Up 43% from 2001 – Charles Hugh Smith
Welcome to debt-serfdom, the only possible output of the soaring cost of living
Long-time readers may recall the Burrito Index, my real-world measure of inflation. The Burrito Index: Consumer Prices Have Soared 160% Since 2001 (August 1, 2016). The Burrito Index tracks the cost of a regular burrito since 2001. Since we keep detailed records of expenses (a necessity if you’re a self-employed free-lance writer), I can track the cost of a regular burrito at our favorite taco truck with great accuracy: the cost of a regular burrito has gone up from $2.50 in 2001 to $5 in 2010 to $6.50 in 2016.
It’s time for an update: the cost of a regular burrito has now reached $7.50, triple the 2001 cost. That’s a 200% increase in 17 years. According to the federal government, inflation since 2001 has risen about 40%: what $1 bought in 2001 now costs $1.43, according to the BLS Inflation calculator.
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