Economische aanraders 08-07-2018
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 roles of economic integration and monetary policy in currency unions – Akvile Bertasiute, Domenico Massaro, Matthias Weber
A key critique of commonly used macroeconomic models is their reliance on the assumption of rational expectations. This column addresses this concern with a model of currency unions wherein expectations are formed through behavioural reinforcement learning, that is, learning from past mistakes. The model suggests that economic integration is of crucial importance to the functioning of a currency union. Monetary policy, in contrast, can only play a limited stabilising role.
Economists Won’t Predict the Next Crash — Because They Can’t – Thorsten Polleit
You get a lot of attention if you shout out things like “The stock market is about to collapse”, or “The US dollar crash is just around the corner”, or “The housing market slump is about to unfold”. But from the viewpoint of sound economics, making these kinds of predictions is quite impossible. Putting probabilities to certain outcomes – such as “I assign a probability of 30 per cent that the stock market collapses in 2018” – might be fashionable among forecasters, but it certainly does not do the trick or make things any better.
To be sure: One cannot, and should not, dismiss the idea that there might be people out there who have the ability to forecast events happening in the future correctly on a sustained basis. For instance, a successful entrepreneur belongs to this very group. He or she comes up with products people want to buy going forward, and they sell these products at prices which exceed production costs. They are also in a position to forecast changes in consumer demand and adjust their output accordingly.
Keynesian Economics Is an Artifact of Cheap Energy – Chalres Hugh Smith
Printing / borrowing money to generate the unsustainable illusion of “growth” sets up the collapse of the entire Keynesian edifice.
Of the many delusions of modern economics, perhaps the greatest is that the dominant Keynesian model reflects permanent dynamics of advanced economies. Economics, along with other social sciences, makes an implicit claim that its econometric claims are the equal of the “hard sciences” of physics and chemistry.
In other words, the econometrics of Keynesian economics is presented as possessing the same timeless validity of the natural sciences.
The reality is that Keynesianism arose in an era of abundant cheap energy, and it is an artifact of that brief one-off period in which industrialization, consumption and the human population were able to expand by leaps and bounds due to cheap energy and new technologies that leveraged greater value (“work,” output) from the cheap energy.
As the Yield Curve Flattens, Threatens to Invert, the Fed Discards it as Recession Indicator – Wolf Richter
This Fed is getting seriously hawkish: It revealed that instead of thinking about backing off rate hikes, it’s replacing the yield curve.
In the minutes of the FOMC meeting on June 12 and 13, released this afternoon, there was a doozie, obscured somewhat by the dynamics of the rate hike plus the indication that there would be two more rate hikes this year, for a total of four, up from three at the prior meeting, with more hikes to come in 2019, along with other changes – a phenomenon I called, This Fed Grows Relentlessly More Hawkish, Gone are the Kid Gloves.
But the doozie in the minutes was about the flattening “yield curve.”
Life after default: Private versus official sovereign debt restructurings – Silvia Marchesi, Tania Masi
Euro area governments have just negotiated a debt relief agreement for Greece, but without face-value debt reduction. This column argues that specific characteristics of sovereign debt renegotiations have significant economic implications. When debt relief operations involve write-offs, the defaulting country benefits strongly in term of growth up to ten years after the restructuring.
OPEC’s dilemma – Daniel Lacalle
The fundamental problem of the last OPEC meeting is the evidence of the division between two groups. One, led by Iran, which wants higher prices and deeper cuts, and the two largest producers, Saudi Arabia and Russia, who support a more diplomatic position.
Iran wants to continue increasing its own production yet wants OPEC to maintain the group cuts. Iran also faces the backlash of sanctions on exports. Today, the US exports more oil than Iran.
Saudi Arabia and Russia have the lowest production costs and stand as the ones to gain more from a moderate production increase. Oil prices will not collapse and they will sell more oil.
“Trade War Is The Beginning Of A New Global Monetary System” – Russell Napier
After two weeks on the road visiting clients your analyst returns with a better view of the consensus outlook. There is, though, much in the consensus to disagree with. In particular it seems peculiar that the consensus believes the democratically elected government of Italy, with policies entirely contrary to EU membership, will be put through the bureaucratic meat grinder in Rome and Brussels and turned into EU sausage, in a similar process that minced the political representatives of Greece.
While this might well be the case, it is hard to understand that the grinding destruction of this democracy, even if it is only moderate compared to the Greek experience, can be anything but bad for growth and asset prices in the EU. Disciplining these politicians to abandon their manifesto promises and follow the ways of the EU is highly unlikely to be a painless experience, either for Italy or the rest of the EU. Nonetheless, investors are content to believe that a painless disciplining of Italy’s elected representatives is all but inevitable. We shall see.
Perhaps the most prevailing consensus view is that the recent weakness of the RMB represents a Chinese counter-punch in the trade war with the US. Coming when it does, it is easy to see the accelerated decline of the RMB as a tactical and not a strategic move. Comments by the PBOC on July 3rd have probably reassured many investors that the managed exchange rate regime is not at risk and that the RMB will continue to be managed against a basket of currencies. Your analyst does not agree.
Bank of Japan Takes Away Punch Bowl, Balance Sheet Declines – Wolf Richter
Was “QQE” just a pretext for bringing the government bond market under control to avoid a Greek-style debt crisis?
In June, total assets on the Bank of Japan’s balance sheet dropped by ¥3.79 trillion yen ($34 billion) from May, to ¥537 trillion ($4.87 trillion). It was the third month-over-month drop in seven months, and the first such drops since late 2012, when the Abenomics-designed blistering “QQE” (Qualitative and Quantitative Easing) kicked off. So has the “QQE Unwind” commenced?
This chart shows the month-to-month changes of the total balance sheet. Note the trend over the past 16 months and the three “QQE unwind” episodes (red):
Volatility Is on the Way Back – Jim Rickards
When geopolitical events create crises in the world, volatility usually follows in world markets. The results of this volatility is important to note and I will discuss this below.
In January 2018, two significant market events occurred nearly simultaneously. Major U.S. stock market indexes peaked and volatility indexes extended one of their longest streaks of low volatility in history.
Investors were happy, complacency ruled the day and all was right with the world.
Then markets were turned upside down in a matter of days. Major stock market indexes fell over 11%, a technical correction, from Feb. 2–8, 2018, just five trading days.
The CBOE Volatility Index, commonly known as the “VIX,” surged from 14.51 to 49.21 in an even shorter period from Feb. 2–6. The last time the VIX has been at those levels was late August 2015 in the aftermath of the Chinese shock devaluation of the yuan when U.S. stocks also fell 11% in two weeks.
Investors were suddenly frightened and there was nowhere to hide from the storm.
Analysts blamed a monthly employment report released by the Labor Department on Feb. 2 for the debacle. The report showed that wage gains were accelerating. This led investors to increase the odds that the Federal Reserve would raise rates in March and June (they did) to fend off inflation that might arise from the wage gains.
Optimal inflation and the identification of the Phillips curve – Michael McLeay, Silvana Tenreyro
The Phillips curve – a positive relationship between inflation and economic slack – is one of the building blocks of the standard macroeconomic models used for forecasting and policy advice in central banks. On the face of it, recent findings of a breakdown in this relationship would therefore have major implications for monetary policy. This column argues that these findings are perfectly consistent with a stable underlying Phillips curve. The reason is simple: monetary policy will typically seek to reduce output whenever inflation is set to rise above target, blurring the identification of the Phillips curve in the data.
***Myth: Gold Makes Boom-Bust Cycles Worse – Frank Shostak
According to some commentators on the gold standard, an increase in the supply of gold generates similar distortions as money out of “thin air” does.
Let us start with a barter economy. John the miner produces ten ounces of gold. The reason why he mines gold is because he believes there is a market for it. Gold contributes to the well-being of individuals.
He exchanges his ten ounces of gold for various goods such as potatoes and tomatoes.
Now people have discovered that gold apart from being useful in making jewelry is also useful for some other applications.
They now assign a much greater exchange value to gold than before. As a result, John the miner could exchange his ten ounces of gold for more potatoes and tomatoes.
Here’s Why Vacant Stores, Zombie Malls Are Much Bigger than Mall Vacancy Rates Indicate – Wolf Richter
Zombie malls and shuttered stores don’t count.
Another regional long-established department-store chain bites the dust. One in an endless series. The 16 Magic Mart stores in West Virginia, Virginia, and Kentucky, plus a distribution center and the company’s headquarters will be closed and liquidated, according to Ammar’s, Inc., a family-owned company that owns the stores and started with its first store 97 years ago.
***The Gathering Storm – Charles Hugh Smith
The gathering storm cannot be dissipated with propaganda and bribes.
July 4th is an appropriate day to borrow Winston Churchill’s the gathering storm to describe the existential crisis that will envelope America within the next decade. There is no single cause of the gathering storm; in complex systems, dynamics feed back into one another, and the sum of destabilizing disorder is greater than a simple sum of its parts.
Causal factors can be roughly broken into two categories: systemic and social/economic. The central illusion of those who focus solely on social, political and economic issues as the sources of destabilization is that tweaking the parameters of the status quo is all that’s needed to right the ship: if only Trump were impeached, if only GDP hits 4% annual growth rate, if only the Federal Reserve started controlling the price of bat guano, etc., etc., etc.
The unwelcome reality is the systemic issues cannot be reversed with policy tweaks or shuffling those at the top of a crumbling centralized order. The systemic problems arise from the structures of centralization and monopoly capital, the institutionalization of perverse incentives and the depletion of natural capital: soil, water, fossil fuels, etc.
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