Economische aanraders 15-10-2017
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.
ECB Suffers from “Corporate Capture at its Most Extreme” – Don Quijones
No single institution has more influence over the lives of European citizens than the European Central Bank. It sets the interest rates for the 19 Member States of the Eurozone, with a combined population of 341 million people. Every month it issues billions of euros of virtually interest-free loans to hard-up financial institutions while splashing €60 billion each month on sovereign and corporate bonds as part of its QE program, thanks to which it now boasts the biggest balance sheet of any central bank on Planet Earth.
Through its regulatory arm, the Single Supervisory Mechanism, it decides which struggling banks in the Eurozone get to live or die and which lucky competitor gets to pick up the pieces afterwards, without taking on the otherwise unknown risks.
Normalisation of monetary policy and central bank balance sheets: The case of Japan – Sayuri Shirai
Japan continues to struggle with sluggish inflation despite recent economic growth. This column discusses the impact of the Bank of Japan’s normalisation monetary easing on the economy, and also specifically on the Bank’s balance sheet. Policy discussion should focus on how to taper bond purchases without causing severe disturbances to the markets, given the economy is some way off its 2% inflation target.
Can a Modern Central Bank Still Be a “Banker’s Bank”? – Marcia Christoff-Kurapovna
Answer: No. And not for reasons of policy or politics, but of national character — that is, what remains of such.
For, once upon a time in the early history of modern banking, a common belief among all rational analysts of the system was an aversion to what was then referred to in those rose-tinted 19th century decades as “speculative political economy.” At the time, central banks carefully managed their status as the symbol and paragon of national pride, responsible as that institution was for the maintenance of three basic principles of fiscal agency. First, that a central bank, above all, must honor its reputation as a ‘pillar of public credit’; secondly, that the central bank both worked with while remained wary of the State; third, that the central bank had to retain a superior position to private banks, and did so by disciplining itself to preside over high reserve ratios and the strict administration of credit.
***De-dollarization Not Now – Wolf Richter
USD-denominated debt outside the US hits record – even junk bonds.
China announced today that it would sell $2 billion in government bonds denominated in US dollars. The offering will be China’s largest dollar-bond sale ever. The last time China sold dollar-bonds was in 2004.
Investors around the globe are eager to hand China their US dollars, in exchange for a somewhat higher yield. The 10-year US Treasury yield is currently 2.34%. The 10-year yield on similar Chinese sovereign debt is 3.67%.
Credit downgrade, no problem. In September, Standard & Poor’s downgraded China’s debt (to A+) for the first time in 19 years, on worries that the borrowing binge in China will continue, and that this growing mountain of debt will make it harder for China to handle a financial shock, such as a banking crisis.
How Will The ECB’s QE Tapering Impact The Market? Here Are The Possible Scenarios – Tyler Durden
It was supposed to come with a “bang.” Instead, the double trial balloon launched by the ECB on Thursday night, delivered at the same time by both Reuters and Bloomberg to make sure that everyone got it and according to which the ECB was considering slashing its QE in half from €60 billion to €30 billion and keeping the program active for at least 9 months, revealed one of the biggest market reaction “whimpers” to an ECB leak in years.
For those who missed it, here again are the bullets:
ECB has consensus to extend asset purchases at lower volumes on Oct 26
Agreed on reducing buys from €60 bln/month for nine months
Debating buys between €25-40 bln – with a likely final bogey of €30 bln – and whether program should be open-ended
Perhaps the market reaction was unexpectedly muted because the announcement was i) largely in line with expectations and ii) still to be finalized. Naturally, the lack of an acute selloff in Bunds (and rates globally) was welcome news to the European central bank, for which another major bond tantrum would be the worst case scenario, one which could promptly unravel the entire carefully planned pre-tapering edifice.
The problem, however, is that the complete lack of a reaction failed to give Mario Draghi a sense of whether the €30 billion bogey was too high, too low or, maybe, just right.
Still, as Citi’s Harvinder Sian writes in a Friday note, the market impact from the ECB meeting is likely to be determined by the signaling channel for policy rates which is imbedded in the QE extension. In other words, the final framework of the ECB’s QE will certainly move markets, “although the purchase horizon is not the only v
Quantifying the effect of the Bank of Japan’s equity purchases – Toby Nangle, Anthony Yates
Among the many in quantitative easing programmes that central banks have engaged in to combat low inflation since the Global Crisis, the Bank of Japan’s programme stands out for its size and scope. This column explores whether the Bank’s programme of purchasing Japanese equities through exchange-traded funds has succeeded in its aim of lowering risk premia of asset prices. The Bank has timed the execution of the programme to coincide with episodes of market weakness, possibly with the aim of dampening price volatility. Over the course of the programme, however, Japanese stocks de-rated against global stocks.
The Endgame of Financialization: Stealth Nationalization – Charles Hugh Smith
This is the new model of nationalization: central banks control the valuation of private-sector assets without actually having to own them lock, stock and barrel.
As you no doubt know, central banks don’t actually print money and toss it out of helicopters; they create a digital liability and use this new currency to buy assets such as bonds and stocks. Central banks have found that they can take control of the stock and bond markets by buying up as much as these markets as is necessary to force price and yield to do the central banks’ bidding.
Central Banks Have Purchased $2 Trillion In Assets In 2017. This increases their combined asset purchases above $15 trillion. A trillion here, a trillion there, and pretty soon you’re talking real money–especially if you add in assets purchased by sovereign wealth funds, dark pools acting on behalf of monetary authorities, etc.
Social Justice: Debt, Solidarity or Care? – Peter Dorman
How do we think about the obligation of social justice? The dominant American political culture is based on individualist values: you have a right to do whatever you want, and the main problem is how to prevent you and other rights-bearing individuals from getting in each other’s way. Without extra considerations, social justice in such a universe is a matter of taste and inclination, which is to say charity. You offer help to others when you feel like it.
But there is an important extra consideration, debt: our freedom in an individualist world is constrained by obligations to repay the debts we have incurred. This may result from a purely financial transaction like a mortgage or a student loan, but we also recognize what might be called social or moral debts, where one person has benefitted at the expense of someone else and therefore owes compensation in return. This might not be recognized in a court of law, but it makes an ethical claim that can cause people to feel a sense of obligation.
Yellen Was Right: “Transitory” Factors of “Low” Inflation Are Reversing, with Much More to Come – Wolf Richter
What’s Boiling Beneath the Surging Inflation?
Consumers are going to shell out more money for the same stuff, that’s for sure. Inflation as measured by the Consumer Price Index jumped 2.2% in September compared to a year ago, the Bureau of Labor Statistics reported this morning. All fingers pointed at energy costs: the index jumped 10.1% year-over-year. Within it, “motor fuel” prices (gasoline and diesel) jumped 19.2%.
Food prices rose 1.2% year-over-year, kept down by prices for “food at home” – the stuff you buy at the grocery store – which inched up only 0.4% year-over-year in part due to the price war currently tearing into the supermarket sector.
Neo-Liberalism: From Laissez-Faire to the Interventionist State – Richard M. Ebeling
One of the most accusatory and negative words currently in use in various politically “progressive” circles is that of “Neo-Liberalism.” To be called a “Neo-Liberal” is to stand condemned of being against “the poor,” an apologist for the “the rich” and a proponent of economic policies leading to greater income inequality.
The term is also used to condemn all those who consider the market economy to be the central institution of human society, at the expense of senses of “community” and shared caring and concern beyond supply and demand. A Neo-Liberal is one who reduces everything to market-based dollars and sense, and disregards the “humane” side of mankind, say the critics of Neo-Liberalism.
The opponents of Neo-Liberalism, so defined, claim that its proponents are rabid, “extremist” advocates of laissez-faire, that is, a market economy unrestrained and unrestricted by government regulations, controls or redistributive fiscal policies. It represents and calls for the worst features of the “bad old days” before socialism and the interventionist-welfare state, each in their respective “radical” or “moderate” ways, attempted to abolish or rein in unbridled, “anti-social” capitalism.
About Those “Hedonic Adjustments” to Inflation: Ignoring the Systemic Decline in Quality, Utility, Durability and Service – Charles Hugh Smith
The quality, durability, utility and enjoyment-of-use of our products and services has been plummeting for years.
One of the more mysterious aspects of the official inflation rate is the hedonic quality adjustments that the Bureau of Labor Statistics makes to the components of the Consumer Price Index (CPI).
The basic idea is that when innovations improve the utility (and pleasure derived from) a product, the price is adjusted to reflect this improvement.
So if television screens become larger, while the price per TV remains the same, the hedonic quality adjustment adjusts the price down when calculating the CPI.
In other words, since we’re getting more for our money–more quality, more features, more goodies, more pleasure–the price is adjusted down to reflect this. If a TV that cost $250 had a 19-inch screen in the old days, and now a $250 TV has a 27-inch screen, the price of TVs in the CPI is adjusted down to reflect this increase in what the consumer is getting for her $250.
So while a TV still costs $250 to the consumer, in terms of measuring inflation the TV is reckoned to cost (for example) $225, as the consumer is getting a larger screen for her $250.
In other words, the price of TVs declines when measuring for inflation, even if the retail price remains unchanged. This is how the official rate of inflation can be so low even as real-world costs keep rising.
***The Curious Case of Missing the Market Boom – Raúl Ilargi Meijer
“The Cost of Missing the Market Boom is Skyrocketing”, says a Bloomberg headline today. That must be the scariest headline I’ve seen in quite a while. For starters, it’s misleading, because people who ‘missed’ the boom haven’t lost anything other than virtual wealth, which is also the only thing those who haven’t ‘missed’ it, have acquired.
Well, sure, unless they sell their stocks. But a large majority of them won’t, because then they would ‘miss’ out on the market boom… Some aspects of psychology don’t require years of study. Is that what behavioral economics is all about?
And it’s not just the headline, the entire article is scary as all hell. It reads way more like a piece of pure and undiluted stockbroker propaganda that it does resemble actual objective journalism, which Bloomberg would like to tell you it delivers. And it makes its point using some pretty dubious claims to boot:
***In a Cashless World, You’d Better Pray the Power Never Goes Out – Ryan McMaken
When Hurricane Maria knocked out power in Puerto Rico, residents there realized they were going to need physical cash — and a lot of it.
Bloomberg reported yesterday that the Fed was forced to fly a planeload of cash to the Island to help avert disaster:
William Dudley, the New York Fed president, put the word out within minutes, and ultimately a jet loaded with an undisclosed amount of cash landed on the stricken island…
[Business executive in Puerto Rico] described corporate clients’ urgent requests for hundreds of thousands in cash to meet payrolls, and the challenge of finding enough armored cars to satisfy endless demand at ATMs. Such were the days after Maria devastated the U.S. territory last month, killing 39 people, crushing buildings and wiping out the island’s energy grid. As early as the day after the storm, the Fed began working to get money onto the island,
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