DE WERELD NU

Economische aanraders 05-07-2020

economische aanraders 0

Economische aanraders: Veren of Lood biedt u op zondag wekelijks een inkijkje in (minstens) 15 belangrijke of informatieve artikelen en interviews die vooral 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. Er zijn in deze rubriek altijd verschillende economische scholen vertegenwoordigd, en we streven er naar die diversiteit te handhaven.

We nemen wekelijks 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.

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Three strikes against the Fed – Willem Buiter
3 juli

The US Federal Reserve – the world’s most important central bank – is not in a good place. This column outlines three flaws in the operating practices of the Fed – (i) its refusal to adopt negative policy rates, (ii) the build-up of significant credit risks through non-transparent (quasi-)fiscal actions, and (iii) stress testing analysis which fails to account for the severity of the COVID-19 crisis. It proposes a number of ways forward, including a symmetric policy rate around zero, a temporary ban on dividend payments, new equity issuance, and conducting a comprehensive stress test of the financial system.
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Why Governments Hate Currency Competition – Thorsten Polleit
1 juli

In this article, I would like to accomplish two goals: First, I want to explain what money is (and what it is not). I will argue that money is the medium of exchange, and that this is the only function of money. Second, I will point out why the size of the money supply does not matter and that the money supply does not have to grow to make an economy any richer. These two insights can be considered timeless truths about money, and I believe they are also of the utmost importance if we want to understand better (1) the role “sound money” plays for our society’s economic progress and (2) what the desirable properties of “sound money” are—past, present, future.
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An “Ominous Disconnect” – What Powell & Lagarde Should Have Told The G-7 – Egon von Greyerz
2 juli

Here is a joint statement from Lagarde and Powell at a secret G7 meeting with all Leaders and Finance Chiefs of the seven nations attending as well as the IMF and BIS:
“The financial system has been on the verge of collapse since September 2019 when we started Repos and QE. And since then it has only got worse. The coronavirus hit us at a time when the banking system was almost down and out.
We had enough problems saving the banks. But now we must save big corporations, small companies, individuals, local municipalities and states, the Federal State and this on top of rescuing a financial system which is deteriorating by the day. The whole system is leaking like a sieve and we are struggling to keep it all afloat.
Fortunately we have printing presses and that helps to keep it all going but only just. Our big fear is that the market will realise that all the money we are printing is worthless. And it is of course but we can’t tell anyone. But if the world wakes up to this one day soon, the financial system could implode in a matter of days. And we would be totally helpless to stop it………”
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How banks affect investment and growth: New evidence – Thorsten Beck, Robin Döttling, Thomas Lambert, Mathijs van Dijk
2 juli

Banks fulfil several key functions in the economy, from improving the allocation of capital by extending credit to facilitating consumption smoothing through saving and borrowing. The creation of liquidity lies at the centre of much of a bank’s operations. This column provides evidence that banks’ liquidity creation is associated with higher economic growth across countries and industries, with important non-linear effects. Results suggest that in the new ‘knowledge economy’ banks will have a more limited role, compared to other types of financial intermediaries and markets.
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JPMorgan Concludes The World Is Drowning In Too Much Debt For Stocks To Go Down Again – Tyler Durden
4 juli

Earlier this week, JPM’s quant Nicholas Panigirtzoglou spotted an ominous signal for equities: similar to what happened in mid-2018 (just before the Fed’s overtightening sent stocks tumbling into a mini bear market in Q4 2018), and then again in the late summer of 2019, when the “break” in the repo market (which incidentally was caused by JPMorgan) forced the Fed to launch “Not QE”, last week the front end of the US Treasury curve (which is a far better signal of financial stress than the long-end which now is mostly a function of global QE) represented by the 1m OIS 2Y-1Y forward spread and which to the JPM quant “is a better signal of policy expectations”, once again inverted, sending an ominous alert signal across asset classes.
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Who Will Get Hit When Collateralized Loan Obligations (CLOs) Blow Up? Banks or Unsuspecting “Market Participants”? – Wolf Richter
29 juni

Answers emerge from the murky business of CLOs.
There has been quite some hoopla surrounding Collateralized Loan obligations (CLOs) because the underlying leveraged loans – junk-rated loans often used by private equity firms to fund leveraged buyouts (LBO) and other high-risk endeavors such as special dividends – are now starting to come apart. There are approximately $700 billion in US-issued CLOs outstanding.
US banks hold $99 billion of these CLOs, according to S&P Global Market Intelligence. The rest are held by various institutional investors, such as insurance companies, pension funds, mutual funds, hedge funds, private equity firms, and the like. They’re also held by entities overseas, including certain banks in Japan that have gorged on these US CLOs. But that’s their problem.
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***The Problem with Measuring “Consumer Sentiment” – Frank Shostak
4 juli

According to the University of Michigan, the US consumer sentiment index rose to 78.1 in June from 72.3 in May. Many experts see the increase in the index as an important indicator regarding the likely course of the US economy in the months ahead.
To gain insight into the economic future, many economists follow a variety of consumer and business surveys. In these surveys, randomly selected consumers and businesspersons are asked to provide their views about where the economy is heading.
If a survey shows that the majority are optimistic, this is supposed to be good news for the economy. Conversely, if the majority of the surveyed are pessimistic, it is seen as a bad omen for the future.
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Credible emerging market central banks could embrace quantitative easing to fight COVID-19 – Gianluca Benigno, Jon Hartley, Alicia García-Herrero, Alessandro Rebucci, Elina Ribakova
29 Juni

Emerging economies are fighting COVID-19 and the economic sudden stop imposed by the containment and lockdown policies, in the same way as advanced economies. However, emerging markets also face large and rapid capital outflows as a result of the pandemic. This column argues that credible emerging market central banks could rely on purchases of local currency government bonds to support the needed health and welfare expenditures and fiscal stimulus. In countries with flexible exchange rate regimes and well-anchored inflation expectations, such quantitative easing would help ease financial conditions, while minimising the risks of large depreciations and spiralling inflation.
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The COVID Crisis Supercharged the War on Cash – Claudio Grass
30 juni

The corona crisis has already taken a very high toll and caused deep damage in our societies and our economies, the extent of which is yet to become apparent. We have seen its impact on productivity, on unemployment, on social cohesion and on political division. However, there is another very worrying trend that has been accelerated under the veil of fear and confusion that the pandemic has spread. The war on cash, already underway for almost a decade, has been drastically intensified over the last few months.
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“Panic-Driven Hoarding Of Bank Notes”: People Aren’t Abandoning Cash During The Pandemic, They’re Socking It Away – Tyler Durden
4 juli

Habits change in the midst of a global recession, not to mention a global pandemic. We have already looked at how the pandemic has caused seismic shifts in many industries, but it is also causing a shift in how people think about, handle and (in this case) hoard cash.
While we have been told non-stop that the pandemic is going to prompt the demise of paper currency and the words “digital dollar” continue to make appearances in government white papers and studies, the Bank of England found that there was actually a marked increase in bills in circulation in places like the U.S., Canada, Italy, Spain, Germany, France, Australia and Russia.
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Negative-Interest Rate Champion Bank of France Now Frets About Ballooning Corporate Debt – Nick Corbishley
29 juni

Central-Bank Forked-Tongue Syndrome.
All over the world, corporations have taken on huge piles of fresh debt to try to weather the crisis. Many of those companies — after years of interest rate repression that encouraged them to borrow — were already heavily indebted before the crisis began. This is particularly true of France, where corporate debt was growing at an annualized rate of 5.8% in February, before the virus crisis began, according to the Bank of France. In March, the rate of growth jumped to 7.1%. It then surged to 9.9 % in April.
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Rethinking production under uncertainty – John H. Cochrane
30 juni

Even at my age, I get a little tingle when a paper is finally published. “Rethinking production under uncertainty” is now out at RAPS (free access for a while) and on my website.
The basic idea is simple.
Our standard way of writing production technologies under uncertainty tacks a shock on to an intertemporal technology. We might write
where is capital invested at time 0, indexes the state of nature (rain or shine) is output in state . That production technology does not allow producers to transform output across states at time 1. No matter high the contingent claim pricer for rain vs. shine, the producer can’t make more in the rain state at the expense of making less in the shine state.
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How EM Bonds May Benefit from Sovereign Debt Relief – Thomas Kirchner, founder of Camelot Portfolios
4 juli

Emerging market (EM) sovereign debt has been in demand by yield hungry investors.
Calls for sovereign debt relief are mounting.
Debt relief on intergovernmental loans could be favorable for EM government bonds.
The Corona epidemic is wreaking havoc on the economies of poor countries and calls are mounting for sovereign debt relief for the poorest nations. The unintended consequences may end up benefitting bondholders in emerging market debt if the overall debt level of debtor nations falls as a result of the debt relief.
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The neighbourhood effect of reforms after crises – Simeon Djankov, Dorina Georgieva, Hibret Maemir
3 juli

Countries reform when their neighbours have reformed too, especially in the aftermath of economic crises. This column examines business regulatory reforms during 2004–2019. Previous crisis episodes have generated improvements in the law and administration of registering property, trading across borders, protecting investors and resolving bankruptcy. The current period of post-COVID-19 recovery is propitious for regulatory reform.
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Empathy for the Poor Is Not Enough – Gerardo Enrique Garibay Camarena
1 juli

Venezuela’s infamous Hugo Chavez, the UK’s Jeremy Corbyn, the US’s Bernie Sanders all proclaim their unwavering pledge to help the “poor” by increasing government intervention to raise their living conditions and to fight the injustices of inequality and capitalism. According to their message, poor people are both pure and perpetually helpless, the condemned victims of a cruel and rotten system that anchors them in permanent disadvantage, a cruel fate from which only the wise [name your favorite politician] can rescue them.
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***Green stimulus, jobs and the post-pandemic green recovery – David Popp, Francesco Vona, Joëlle Noailly
4 juli

Many governments worldwide are currently considering fiscal recovery packages to address the Covid-19 crisis. This column analyses the impact of past green fiscal stimulus on employment. Focusing on the American Recovery and Reinvestment Act after the Global Crisis, it finds that that the green stimulus was particularly effective in creating jobs in the long run, but not in the short run. Hence, while green stimulus packages are useful to reorient the economy and direct it onto a green trajectory in the longer run, they are less effective in restarting the economy quickly.
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As the Biggest Restaurant Chains in the UK Fall into Bankruptcy, Attention Turns to KKR & Other PE Firms that Own Them – Nick Corbishley
4 juli

PE firms sit on lots of cash but won’t invest it in their stripped-bare and failing restaurant chains.
After more than three months of not being able to serve either food or drinks, KKR-owned Casual Dining Group (CDG), one of the UK’s largest restaurant groups, collapsed into administration, a form of bankruptcy under UK law, on Thursday. The company, which owns the Bella Italia, Café Rouge and Las Iguanas restaurant chains, said it plans to shut 91 of its 250 outlets and cut 1,900 jobs. Bella Italia and Café Rouge are the worst hit, with 35 and 32 closures, respectively.
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Thomas Sowell: Understanding Markets and Free Choice – Gary Galles
30 juni

June 30 marks the ninetieth birthday of Thomas Sowell. But it is insufficiently celebrated, in no small part because he shares that birthday with Frederic Bastiat, one of history’s most famous economics writers, whose work attracts a great deal of attention then.
That is ironic in that Sowell and Bastiat share an uncommon ability to write sensibly about economics in ways “real people” can understand, especially in spotting the errors that are so common in public policy, without overreliance on jargon, diagrams, or mathematics.
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The effects of parallel trade of drugs in Europe – Pierre Dubois, Morten Sæthre
4 juli

Differences in regulated pharmaceutical prices within the European Economic Area create arbitrage opportunities that pharmacy retailers can access through parallel imports. For prescription drugs under patent, parallel trade affects the sharing of profits among an innovating pharmaceutical company, retailers, and parallel traders. This column discusses recent findings showing that in a country which does not regulate pharmacy retailers’ margins, retailer incentives to bargain lower wholesale prices play a significant role in fostering parallel trade penetration, and that banning parallel imports would benefit manufacturers.
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Chill Out: Study Finds Easily-Triggered People Make Terrible Employees – Tyler Durden
4 juli

With half the country seemingly triggered over the slightest injustice, microaggression or misgendering, a new study concludes that people with a high “proclivity to be offended” (PTBO) make terrible employees.
What is PTBO? According to the study, it’s “a state-like tendency to be sensitive to customarily innocuous societal events and traditions,” such as “playing of the United States’ National Anthem,” and is the “tendency to view an array of events and/or traditions as offensive.” People with high PTBO “are likely to feel that social events or traditions to which they take offense also violate moral or equitable standards.”
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How We Got Here: the Global Economy’s 75-Year Stumble to the Precipice – Charles Hugh Smith
4 juli

Not only will there not be a recovery, but there can’t be a recovery, as those brittle extremes have been lost for good.
How did the global economy end up teetering on a precarious financial precipice? To formulate a cogent answer, let’s take a whirlwind tour of the history of the global economy 1946-2020.
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Disclaimer: De VoL-redactie selecteert deze artikelen op interessante inzichten, of naar wij denken nuttige informatie. Wij kunnen echter geen enkele aansprakelijkheid aanvaarden voor de gevolgen van beslissingen die op grond hiervan door lezers zijn genomen, zakelijk zomin als privé.

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