Economische aanraders 08-12-2019
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.
Why this Boom Could Keep Going Well Beyond 2019 – Thorsten Polleit
The Austrian business cycle theory offers a sound explanation of what happens with the economy if and when the central banks, in close cooperation with commercial banks, create new money balances through credit expansion. Said credit expansion causes the market interest rate to drop below its “natural level,” tempting people to save less and consume more. Credit expansion also drives firms to increase investment spending. The economy enters into a boom phase.
However, the boom is unsustainable. After the effect of the injection of new money balances has worked itself through the economy, consumers and entrepreneurs realize that the economic expansion has been a one-off affair. They return to their previously preferred savings-consumption-investment affinity: once again, they save more, consume, and invest less. This manifests itself in a rising market interest rate and the boom subsequently turns into bust.
Fiscal policy cannot save the ECB – Daniel Gros, Angela Capolongo
The ECB is running out of options for addressing its twin problems of low inflation and negative interest rates, leading some, including outgoing President, Mario Draghi, to call on fiscal policy measures to be used. This column argues that a fiscal expansion would be ineffective in raising interest rates or inflation for any length of time. Not only would the effect be temporary, but the scale of expansion needed to effect any substantial change would be unfeasible.
Crunchtime: When Events Outrun Plan B – Charles Hugh Smith
Not only will events outrun Plan B, they’ll also outrun Plans C and D.
We all know what Plan B is: our pre-planned response to the emergence of risk. Plan B is for risks that can be anticipated, regular but unpredictable events such tornadoes, earthquakes, hurricanes, etc. In the human sphere, risks that can be anticipated include temporary loss of a job, stock market down turns, recession, disruption of energy supplies, etc.
Hidden in most Plan B’s are a host of assumptions that all the systems running in the background pf the economy will remain stable. Even if electrical and cell-phone service go down, for example, we assume the outage will be temporary. We assume delivery of energy and food will resume shortly, we assume medical care will be available somewhere nearby, roadways will soon be cleared and so on.
In other words, we assume emergencies will be short-lived and that these non-linear events will leave the rest of our social and economic orders as fully intact linear systems, that is, predictable because the outputs (results) will continue to be proportional to the inputs.
Easy-Money Policies Don’t Solve the Problem of Idle Resources – Frank Shostak
It is widely believed that resources that are utilized in normal times to promote economic prosperity become underutilized during recessions. Some experts hold that what is required are policies which will increase the availability of credit. On this Ludwig von Mises wrote in Human Action,
Here, they say, are plants and farms whose capacity to produce is either not used at all or not to its full extent. Here are piles of unsalable commodities and hosts of unemployed workers. But here are also masses of people who would be lucky if they only could satisfy their wants more amply. All that is lacking is credit. Additional credit would enable the entrepreneurs to resume or to expand production. The unemployed would find jobs again and could buy the products. This reasoning seems plausible. Nonetheless it is utterly wrong.
It makes sense to suggest that what is lacking to absorb idle resources is the scarcity of credit. One should however emphasize that the credit that is lacking is productive credit. Briefly, productive credit emerges when a wealth generator lends some of his real wealth to another wealth generator. By giving up the use of the loaned real wealth at present, the lender is compensated in terms of interest that the borrower agrees to pay.
Inflation Is Coming: All the Trends That Were Deflationary Are Slowly Going in Reverse – Harris “Kuppy” Kupperman
But of all potential economic outcomes, the one least anticipated and least priced in, is an uptick in inflation.
Investing is all about probabilities. If the perceived odds of an event are high, certain securities will be priced based on those expected probabilities. The corollary is that when an event is perceived as almost impossible, securities do not price in any chance of it occurring. If that event does occur, all sorts of securities need to re-price—often quite rapidly. I like to spend my time pondering what potential events the market completely ignores. Of all potential economic outcomes, the one that is least anticipated and least priced in, is an uptick in inflation.
Public debt and private investment – Yi Huang, Ugo Panizza, Richard Varghese
Establishing the presence of a causal link from public debt to economic growth and investment has proved challenging. This column uses data for nearly 550,000 firms in 69 countries to show that government debt affects corporate investment by tightening the credit constraints faced by private firms. Higher levels of public debt increase the correlation between investment and cashflow for firms that are more likely to be credit constrained – i.e. unlisted, small, and young firms – but appear to have no effect on the correlation between cash and investment of listed, well-established, and large firms.
The Benefits of Free Trade Are Canceled Out by Domestic Interventionism – Carmen Elena Dorobăț
Foreign policy commentators live in their own bubble. The WTO’s credibility is gone and its survival uncertain due to its lack of impact on world trade over the last two decades. A China vs. USA trade war is still growing and the economic community of European states is in its worst-ever shape. Yet no one stops to wonder if all these failures have anything to do with the kind of economic integration they propose. In fact, the media is now childishly excited about the ASEAN-led Regional Comprehensive Economic Partnership (RCEP), a Trans-Pacific Partnership surrogate many years in the making.
Central Bank Liquidity Firehose Turns Wall Street Most Pessimistic In 15 Years – Tyler Durden
Almost exactly one year ago today, the stock market was tumbling and on December 24, 2018 was set to post its first 20% “bear market” correction since the financial crisis. However, not even the most jittery market since the financial crisis, one which saw virtually every major asset class post sharply negative returns, managed to sap the sellside analyst crew of its traditional optimism.
As a reminder, at the start of December 2018 Bloomberg calculated that of the 14 forecasts for 2019 from firms it tracks, the average prediction was for the S&P 500 to rise 11% to 3,056 by the end of 2019. And while the steepness of the forecast path reflected the recent damage done to stocks, it was the most optimistic call since the bull market began in 2009.
What’s Driving the Decline in the Goods-Based Sector, After the Boom of 2018? – Wolf Richter
And a special word on apparel sales, as a sign of our times.
Services are growing at a decent pace, though more slowly than a year ago. The labor market is the strongest in years, so consumer spending is growing at a good pace, including retail sales, driven by red-hot ecommerce sales. Where the economy is in trouble is in industrial goods and in the huge oil-and-gas sector which also drags down the manufacturing segments that supply it with heavy equipment, tech equipment, vehicles, chemicals, and the like. And I have a couple of special thoughts on the consumer side, concerning apparel sales.
Exports: Currency Devaluation Won’t Grow the Economy – Frank Shostak
A visible weakness in economic activity in major world economies raises concern among various commentators that world economies have difficulties recovering despite very aggressive loose monetary policies. The yearly growth rate of US industrial production stood at minus 1.1 % in October, against minus 0.1% in September, and 4.1% in October last year. In the euro zone, the yearly growth rate of production stood at minus 1.7% in September versus minus 2.8% in the month before and 0.6% in September 2018. In addition, in China the growth momentum of industrial production remains under downward pressure with the annual growth rate declining to 4.7% in October from 5.8% in September and 5.9% in September the year before.
Japan Is Again Forced To Stimulate Its Troubled Economy – Bruce Wilds
Japan faces a wall of debt that can only be addressed by printing more money and debasing its currency. This means they will be paying off their debt with worthless yen where possible and in many cases defaulting on the promises they have made. Japan currently has a debt/GDP ratio of about 250% which is the highest in the industrialized world. With the government financing almost 40 percent of its annual budget through debt it becomes easy to draw comparisons between Greece and Japan. While adding to the markets move higher across the globe the latest move by Prime Minister Shinzo Abe should do little to boost confidence in the small island nation.
Trade Wars Just Getting Started – Jim Rickards
Markets are eagerly awaiting the conclusion of the so-called “phase one” trade deal between the U.S. and China.
Both parties are trying to reach a mini-deal involving simple tariff reductions and a truce on new tariffs along with Chinese purchases of pork and soybeans from the U.S.
The likely success or failure of the mini-deal has been a main driver of stock market action for the past year. When the deal looks likely, markets rally. When the deal looks shaky, markets fall.
A deal is still possible. But investors should be prepared for a shocking fall in stock market valuations if it does not. Markets have fully discounted a successful phase one, so there’s not much upside if it happens.
China’s Mercantilism Is a Recipe for Stagnation – Mihai Macovei
Over the past two decades, fears about China’s rapid economic and technological advancement have grown exponentially and culminated in the recent trade war unleashed by President Trump. But only supporters of government intervention could think of China’s market socialism as a redoubtable challenger to a market-oriented economy. But that’s not how it works. Murray Rothbard, for example, has clearly shown that government interventions result in more interventions to deal with the unintended negative consequences of the first ones.1 Moreover, interventions aimed at restoring initial market conditions further disrupts the market process. The case of China illustrates very well this cumulative nature of government interventions.
When Losses Don’t Matter: How Japanese Conglomerate Mitsubishi Blows Billions on a Jet Nobody Really Wants – MC01
On paper, this looked like a no-brainer.
At the 2007 Paris Air Show, Mitsubishi Heavy Industries announced to much fanfare a brand-new regional airliner. The fantastically named Mitsubishi Regional Jet (MRJ) was to be certified for commercial operations by 2012 and to set a number of firsts for the technologies employed in its construction, including an airframe made with over 80% in composites.
The MRJ was the culmination of a ¥50 billion ($440 million in 2003 money) study program funded by the Japanese Government to build a regional airliner in the 50-90-seat category with as much domestic content as possible.
***Costs Are Spiraling Out of Control – Charles Hugh Smith
And how do we pay for these spiraling out of control costs? By borrowing more, of course.
If we had to choose one “big picture” reason why the vast majority of households are losing ground, it would be: the costs of essentials are spiraling out of control. I’ve often covered the dynamics of stagnating income for the bottom 90%, and real-world inflation, i.e. a decline in purchasing power.
But neither of these dynamics fully describes the relentless upward spiral of the cost basis of our economy, that is, the cost of big-ticket essentials: housing, education and healthcare.
The costs of education are spiraling out of control, stripping households of income as an entire generation is transformed into debt-serfs by student loan debt. The soaring costs of healthcare are a core driver of higher costs in the education complex (and government in general), and to cover these higher costs, counties raise property taxes, which add additional cost burdens to households and enterprises as rents rise.
***Using history to understand hidden wealth in the UK – Neil Cummins
Sharp declines in the concentration of declared wealth occurred across Europe and the US during the 20th century. But the rich may have been hiding much of their wealth. This column introduces a new method to measure this hidden wealth, in any form. It finds that between 1920 and 1992, English elites concealed 20-32% of their wealth. Accounting for hidden wealth eliminates one-third of the observed decline of top 10% wealth share over the past century.
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