Economische aanraders 05-08-2018
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.
Debate Over Target2 Continues: Twilight of the Euro – Mike Mish Shedlock
ligence blasts Faz for inaccuracies while spreading a pile of its own through the mouth of Mark Schieritz who says (translated) Do not be afraid of the trillions bomb.
Schieritz says: “The claims and the liabilities are fictional quantities. They exist virtually, in the balance sheets of central banks, not in the real world.”
One can stop there knowing full knowledge that Schieritz’s article is complete nonsense.
In the real world, Target2 imbalances are a measure of capital flight and loans that cannot be paid back. Even if there once was adequate capital for loans made by Italian banks, that capital vanished long ago.
*** The EU Backs Off its War on Cash. Here’s Why – Don Quijones
People view paying in cash “as a fundamental freedom, which should not be disproportionately restricted.”
The European Commission, in its official war on cash, admitted that physical cash is perhaps not quite the source of all evil that many EU institutions, including the Commission itself, had made it out to be. And it has abandoned its war on cash.
In a report to the European Parliament and Council on the viability of EU-wide cash payment restrictions, the Commission made three crucial observations.
Macroeconomics Has Lost Its Way – Alasdair Macleod
The father of modern macroeconomics was Keynes. Before Keynes there were macro considerations, which were firmly grounded in human action, the personal preferences and choices exercised by individuals in the context of their own earnings and profits. In order to give a role to the state, Keynes had to get away from human action and devise a positive management role for central planners. This was the unstated purpose behind his General Theory of Employment, Interest and Money.
To this day, his followers argue that macroeconomics is different from individual actions, and the factors that determine the behavior of individuals are not the same as those that determine the wider economy.
This article explains why it cannot be true, why modern macroeconomic beliefs are fundamentally flawed, and why interventionism has not only failed to produce overall benefits for the wider public, but has been at an unnecessary economic cost.
Europe Needs to “Harmonize” to Ireland’s Tax Level, not to France’s – Daniel Lacalle
Whenever we talk about tax cuts and growth-oriented tax programs in Europe, many tell us that “it is not possible” and that the European Union does not allow it.
However, it is false. Attractive, growth-oriented tax systems are not only possible in the European Union, but those countries that implement them have higher economic growth rates, less unemployment, and a well-funded welfare state.
To deceive us, we are forced to ignore Ireland, The Netherlands, and Luxembourg as well as most of the technology and job creation leaders.
Lower taxes and greater liberalization than in the rest of the Eurozone means higher growth, better wealth, and greater social welfare. The economic miracle of Ireland is not statism. Its secret is to put budgetary stability, investment attraction, private initiative, and maximize disposable income of citizens as the pillars of its economic policy.
How EU banks modelled their stress away in the 2016 EBA stress tests – Friederike Niepmann, Viktors Stebunovs
In the European Banking Authority’s EU-wide stress tests, banks project capital ratios under a hypothetical adverse scenario employing their own models, which are constrained by a common methodology set by the Authority. This column argues that letting banks produce their own projections means they are prone to manipulation. It finds evidence that banks’ internal models are modified to lessen losses given the applicable scenarios and exposures. Without this manipulation, projected aggregate credit losses would have been up to 28% higher in the 2016 stress tests.
“Hidden Debt Loophole Could be Widespread: Fitch” – Wolf Richter
Use of this financial instrument has ballooned. No one knows to what extent because there’s no disclosure. But it was a “key contributor” to the sudden collapse of outsourcing giant Carillion.
As regulators and stiffed creditors were poking through the debris of collapsed outsourcing giant Carillion – once employing 43,000 people worldwide – they found that the UK company had hidden much of its debts. And Fitch Ratings warned that this “technique” – a “debt loophole” – may be “widespread” in the US and Europe.
Carillion provided services to governments. It didn’t manufacture anything, didn’t have a lot of assets, and didn’t have a lot of debt – at least not disclosed on its books. Net debt on its balance sheet amounted to £219 million. But Fitch estimates that it had an additional financial debt of £400 million to £500 million.
Capitalism Killed Our Climate Momentum, Not “Human Nature” – Naomi Klein
This Sunday, the entire New York Times Magazine will be composed of just one article on a single subject: the failure to confront the global climate crisis in the 1980s, a time when the science was settled and the politics seemed to align. Written by Nathaniel Rich, this work of history is filled with insider revelations about roads not taken that, on several occasions, made me swear out loud. And lest there be any doubt that the implications of these decisions will be etched in geologic time, Rich’s words are punctuated with full-page aerial photographs by George Steinmetz that wrenchingly document the rapid unraveling of planetary systems, from the rushing water where Greenland ice used to be to massive algae blooms in China’s third largest lake.
The impact of artificial intelligence on employment – Georgios Petropoulos
Technological development, and in particular digitalisation, has major implications for labour markets. Assessing its impact will be crucial for developing policies that promote efficient labour markets for the benefit of workers, employers and societies as a whole.
Looking at the labour displacement and productivity effects of AI on employment, the author argues that middle-level jobs that require routine manual and cognitive skilled are the ones that are most at risk. In the long run, initial labour displacement effects of jobs with routinised manual or cognitive skills, as in previous industrial revolutions, will be compensated for by the growth in non-routine jobs at the high and low end of the economy.
On the prosperity of countries – Linda Yueh
Between 1960 and 2008, only a dozen or so middle-income countries became prosperous. This column explores the factors affecting how and why some countries become prosperous, while others fail. Consistent with the theories of New Institutional Economics, economies that adopted the economic policies and institutional reforms of successful countries enjoyed the largest increases in prosperity. These successes point to the advantages of looking beyond the economic staples of capital, labour, and technology in fashioning growth policies.
Here’s Why Rip-Roaring Inflation Is Inevitable – Charles Hugh Smith
The stability of America’s status quo is illusory.
One of the enduring mysteries of the past decade is why inflation has remained tame while the central bank and government have pumped trillions of dollars of newly created money into the economy. Millions of words have been written about this, and so some shortcuts will have to be taken to make sense of it in one essay.
Let’s start with the basics.
1. Adding newly created money but not generating new goods and services of the same value reduces the purchasing power of existing money. To keep it simple: say the economy of a country is $20 trillion. (Hey, the US GDP is $20 trillion…) Say its money supply is $10 trillion.
So banks and/or the government create $2 trillion in new money but the value of goods and services only expands by $1 trillion. the “extra” $1 trillion of newly created money (either “printed” or borrowed into existence) reduces the value of all existing money.
In effect, the new money robs purchasing power from all existing money. Those holding existing money have lost purchasing power while the recipients of the new money receive purchasing power they didn’t have prior to receiving the new money.
Was The Aramco IPO Destined To Fail? – Kurt Cobb
Since late 2016 the financial media has been abuzz about what would likely be the biggest initial public offering (IPO) ever: The sale of 5 percent of the world’s largest oil company, Saudi Aramco, which is wholly owned by the government of Saudi Arabia. The IPO with its required disclosures would shed light on the inner workings of the company for the first time since it was nationalized in 1980 and lead to independent verification of its oil reserves and other assets.
It would be a large first step in unmasking the murky world of national oil companies (NOCs), the reserves of which are thought to represent 90 percent of the world’s total reserves of oil and natural gas according to one estimate.
Bank resolution and the structure of global banks – Patrick Bolton, Martin Oehmke
When banks are too big to fail, resolution frameworks for are hobbled by the mismatch between their global nature and the national scope of regulators. This column argues that while a ‘single point of entry’ resolution is efficient, it is often incompatible with the interests of regulatory authorities, both ex ante and ex post. Taking the political constraints and incentives of national regulators into account implies that a credible resolution regime cannot be‘one size fits all’.
Don’t Conflate Bitcoin and the Blockchain – John R. Skar
There it is again! That smooth, subtle, and seamless transition conflating cryptocurrencies, like bitcoin, with the blockchain technology. There are thousands of blog posts and news articles about bitcoin and cryptocurrencies, but the great majority fail to clearly distinguish between the technology and the digital currency that is created and transmitted by it. In a “Bitcoin Primer” published by Coinlab, “The term Bitcoin refers to both the digital unit of stored value and the peer-to-peer network of computers transmitting and validating transactions of these units.”
In another bitcoin primer, we read “Bitcoin is a decentralized peer-to-peer payments network and a virtual currency that essentially operates as online cash.”
To some degree, it is understandable. The original bitcoin white paper by Satoshi Nakamoto described a digital currency produced on a unique-to-bitcoin blockchain platform. They were as inseparable as Siamese twins and many bitcoin enthusiasts share exactly that view of the world.
The Fed Accelerates its QE Unwind – Wolf Richter
Mopping up liquidity.
The Fed’s QE Unwind – “balance sheet normalization,” as it calls this – is accelerating toward cruising speed. The first 12 months of the QE unwind, which started in October 2017, are the ramp-up period – just like there was the “Taper” during the final 12 months of QE. The plan calls for shedding up to $420 billion in securities in 2018 and up to $600 billion a year in each of the following years until the balance sheet is sufficiently “normalized” – or until something big breaks.
***Can Deflation Fix the Damage Done by Inflation? – Frank Shostak
Loose monetary policy of the central bank, which amounts to the lowering of interest rates and monetary pumping, gives rise to activities that cannot exist by themselves without the support from this loose monetary policy.
An increase in money supply as a result of an easy monetary stance by the central bank sets an exchange of nothing for something — i.e., the diversion of real wealth from wealth generators toward activities that emerge on the back of loose monetary policy. Various activities that emerge on the back of loose monetary policy are bubble activities. Given that these activities cannot support themselves, they constitute a burden on wealth generators.
It is tempting to suggest that a tighter monetary stance of the central bank could undo the negatives of the previous loose monetary stance — i.e., inflationary policy through the removal of bubble activities. In fact, this type of policy carries a label of a countercyclical policy.
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