Economische aanraders 09-08-2020
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.
The cleansing effect of banking crises – Reint Gropp, Steven Ongena, Jörg Rocholl, Vahid Saadi
Recessions are periods of low opportunity costs for time and resources, and hence can facilitate a productivity-enhancing reallocation of resources and improve productivity growth. However, recessions can also slow productivity growth by intensifying credit frictions, for instance, through the accumulation of legacy assets in the banking sector. This column investigates the interaction between these two channels in the recent banking crisis and shows that US regions with more restructuring of inefficient banks during the post-Global Crisis recession experienced higher productivity growth in the real sector in subsequent years.
The Origins of the Dollar’s Value – Frank Shostak
Why does the dollar bill in one’s pocket have value? The value of money is established, according to some experts, because the government in power says so. For some commentators the value of money is on account of social convention. What this implies is that money has value because it is accepted. And why is it accepted? …because it is accepted! Obviously this is not a good explanation of why money has value.1
Let us try another approach. Demand for a good arises from its perceived benefit. For instance, people demand food because of the nourishment it offers them. Likewise, people demand money not for direct use in consumption, but in order to exchange it for other goods and services. Money is not useful in itself, but because it has an exchange value—it is exchangeable in terms of other goods and services. Money is demanded, because it offers the benefit of its purchasing power, i.e., its price.
Bite the Bullet or Extend & Pretend? Unemployment in Europe – Nick Corbishley
45 million people have been furloughed in Germany, the UK, France, Italy, and Spain, but the “unemployment” rate barely budged because furloughs don’t count. Creating government-subsidized zombie companies & zombie jobs?
Unemployment in the EU has barely budged since the virus crisis began. In the first four months of the crisis, the official unemployment rate edged up from 6.5% in March, when many lockdowns began, to 7.1% in June, the last month on record. There’s one reason: Furloughed workers are not included in the unemployment stats (all charts via Trading Economics)
***If the “Market” Never Goes Down, The System Is Doomed – Charles Hugh Smith
The reliance on “good news” narratives dooms our financial system and economy to a death spiral once reality breaks through the induced euphoria.
“Markets” that never go down aren’t markets, they’re signaling mechanisms of the Powers That Be. Markets are fundamentally clearing houses of information on price, demand, sentiment, expectations and so on–factual data on supply and demand, shipping costs, cost of credit, etc.–and reflections of trader and consumer emotions and psychology.
If markets are never allowed to go down, the information clearing house has been effectively shut down. Whatever information leaks out has been edited to fit the prevailing narrative, which in this moment is “central banks will never let markets go down ever again, so jump in and ride the guaranteed Bull to easy gains.”
Going bankrupt in China – Bo Li, Jacopo Ponticelli
The lack of an efficient and independent judicial system can impede economic development by negatively affecting firms’ ability to invest, innovate, and reallocate capital towards more productive projects. This is indeed a concern for China. This column exploits the introduction of specialised bankruptcy courts in different Chinese cities between 2007 and 2017 to examine its effects on the local economy. Specialisation leads to faster resolution of bankruptcy cases, especially for state-owned firms. It also increased local firms’ average product of capital and decreased the share of labour employed in zombie-intensive industries compared to cities where insolvency is still resolved exclusively by civil courts.
The U.S. Economy Is Stronger Than The Eurozone – Daniel Lacalle
The United States is showing resiliency and strength compared with other leading economies worldwide. The impact of the Covid-19 forced shutdown crisis is lower in the United States than in Japan, Germany, France, the average of the European Union 27 and the Euro-Area countries.
The recovery is also stronger and more sustainable. This does not mean that the economic impact is small. Recession is severe and its impact on jobs and growth cannot be underestimated, but it is important to show how other economies with larger government spending plans and important entitlement programs are showing a much weaker performance.
Why’s the ECB Buying the Debt of So Many Non-EU Companies? – Nick Corbishley
“Companies from outside the euro zone are setting up companies or vehicles to issue debt in euros and thereby qualify for the ECB’s purchase programs.”
The European Central Bank has been hoovering up the corporate bonds of a growing number of multinational firms that are not based in the Eurozone or the EU. Those firms include the finance divisions of Swiss behemoths Nestlé and Novartis, US giants Coca Cola and John Deere and UK-based British American Tobacco and WPP. It also includes the Hong Kong-based, Cayman Islands-registered conglomerate CK Hutchison Group.
Modern Monetary Theory Is Playing With Fire – Ethan Yang
Like it or not Stephanie Kelton is an economist whose ideas are making a huge splash in the world of economic thinking. She currently serves as a professor at Stony Brook University but more notably served as the Chief Economist on the Senate Budget Committee as well as the senior economic advisor to the Bernie Sanders presidential campaign. This background should give you some insight into her latest book, titled The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy.
Published in 2020, this book may be the flagship literature of Modern Monetary Theory (MMT), as it is not only accessible to the average person but also well-written. Perhaps that is also what makes this book rather dangerous as it combines rigorous theoretical concepts with rather deceptive analogies about how these ideas might work, and a decent amount of progressive political talking points.
***The Global Sanctions Data Base – Gabriel Felbermayr, Aleksandra Kirilakha, Constantinos Syropoulos, Erdal Yalcin, Yoto Yotov
In recent years, economic sanctions have increasingly become ‘the tool of choice’ in responses to international political challenges related to geo-political conflicts. But are sanctions successful in achieving their purported objectives? And what are the economic costs of sanctions in a world that is increasingly interconnected with global value-chains and multinational enterprises? This column introduces a new dataset of economic sanctions that covers all bilateral, multilateral, and plurilateral sanctions in the world from 1950 to 2016 that can be utilised to analyse sanctions policies.
Why Keynes Was Wrong about Consumer Spending – Frank Shostak
As a result of the coronavirus pandemic, most experts are of the view that it is the role of the government and central bank to minimize the damage inflicted by the virus—and the policy response to it—on the economy.
The logic behind this reasoning is that increases in the demand for goods and services are the heart of economic growth. It is held that increases or decreases in demand are behind the rises and declines in the economy’s production of goods and services. It is also held that the overall economy’s output increases by a multiple of the increase in expenditure by government, consumers, or businesses.
How to prevent the looming sovereign debt crisis – Joseph Stiglitz, Hamid Rashid
From Latin America’s lost decade in the 1980s to the more recent Greek crisis, there are plenty of painful reminders of what happens when countries cannot service their debts. This column argues that a global debt crisis today would likely push millions of people into unemployment and fuel instability and violence around the world, and proposes a multilateral sovereign debt buyback facility which could be managed by the IMF.
A Vaccine for Retail? My View from the Trenches – John McNellis
Every city is confronted with dying malls and vacancy-pocked shopping districts. Is there a cure? No. The failing retailers were already on their way to the morgue. Is there a vaccine that will help? Yes.
Retail has the virus. Just as with people, different retailers are reacting to this infection very differently. Ailing merchants with comorbidities are suffering — or dying — while those without long-term illnesses are asymptomatic, even healthy.
Trump Can Ensure a V-shaped Economic Recovery by Heeding the Lessons of 1921 – Walter Block
A U or V? That is the question—whether the economic recovery from the COVID-19 shutdown will be a long, drawn-out process, a wide, flattish U” or a sharp, upward-bound one, a V.
To best wrestle with this question, let us look back a bit at some economic history regarding recessions and depressions, focusing on the US. Is this of interest to those following the course of the Chinese economy? Of course. When the US sneezes, China catches a cold. And, of course, the opposite is true as well.
Financial market reactions to monetary policy signals – Carlo Altavilla, Refet Gürkaynak, Roberto Motto, Giuseppe Ragusa
Mapping the impact of central bank policy communications onto yield curve changes is important but challenging. This column studies policy communications of the ECB and maps these communications onto yield curve changes by studying the information flow on days when a monetary policy decision is communicated. Using the now publicly available Euro Area Monetary Policy Event-Study Database,it finds that different monetary policy measures affect different segments of the interest rate term structure, with policy rate changes mostly influencing the short end of the curve, quantitative easing measures more the long end, and forward guidance policies affecting intermediate maturities.
Fed Wants Inflation But Their Actions Are Deflationary – Lance Roberts
A recent CNBC article states the Fed will make a major commitment to ramping up inflation. How is this different than the past decade of promises for higher inflation? More importantly, while the Fed may want inflation, their very actions continue to be deflationary.
The Fed Has A Plan
“In the next few months, the Federal Reserve will be solidifying a policy outline that would commit it to low rates for years as it pursues an agenda of higher inflation and a return to the full employment picture that vanished as the coronavirus pandemic hit.
Recent statements from Fed officials and analysis from market veterans and economists point to a move to “average inflation” targeting in which inflation above the central bank’s usual 2% target would be tolerated and even desired.
To achieve that goal, officials would pledge not to raise interest rates until both the inflation and employment targets are hit.” –
***US Crude Oil Production Plunged Most Ever, Natural Gas Followed: The Great American Oil & Gas Bust, Phase 2 – by Wolf Richter
Precisely what’s needed to end the price collapse. But last time, it wasn’t long before Wall Street liquidity surged back into shale, starting the cycle all over again.
US crude oil production in May plunged by 1.99 million barrels per day, from 12 million b/d in April to 10 million b/d, the largest monthly drop since at least 1980, and the sixth monthly drop in a row, according to the EIA.
This comes after the collapse in demand for transportation fuels – especially gasoline and jet fuel – that started in March and exacerbated the oil glut and a downward spiral of the already depressed prices for crude oil. Amid a torrent of bankruptcy filings by oil-and-gas companies, drillers cut drilling activity and production. This trend restarted last year, after having subsided somewhat following phase 1 of the Great American Oil Bust in 2015-2016, but took on record proportions during the Pandemic.
US Dollar Devalues By 99% Vs Gold In 100 Years As Gold Price Crosses $2,067 – Jan Nieuwenhuijs
A world reserve currency is supposed to be superior in storing value, but through boundless money-printing the U.S. dollar hasn’t been able to compete with gold by a long shot…
In 1932 the gold price was $20.67 dollars per troy ounce, today it crossed $2,067 dollars.
Bullion Banks Have “No Way Out” From Big Gold Short – Alasdair Macleod
There appears to be no way out for the bullion banks deteriorating $53bn short gold futures positions ($38bn net) on Comex. An earlier attempt between January and March to regain control over paper gold markets has backfired on the bullion banks.
Unallocated gold account holders with LBMA member banks will shortly discover that that market is trading on vapour. According to the Bank for International Settlements, at the end of last year LBMA gold positions, the vast majority being unallocated, totalled $512bn — the London Mythical Bullion Market is a more appropriate description for the surprise to come.
The value of luck in the labour market for CEOs – Mario Daniele Amore, Sebastian Schwenen
Do CEOs always earn their pay? Using data on executive compensation along with accounting data for S&P 1500 firms,this column explores how swings in firm value that are unrelated to CEO actions (i.e. ‘luck’) affect CEOs’ opportunities in the labour market and the performance of firms that hire lucky CEOs. It finds that luck makes CEOs more likely to move to a new firm subject to low analyst coverage and in less competitive industries, where they receive a higher pay compared to industry peers. Hiring lucky CEOs harms firm performance due to a surge in operating costs and a poorer usage of corporate assets.
How Central Banks Made the Covid Panic Worse – Kristoffer Mousten Hansen
Historical events are complex phenomena, and monocausal explanations are therefore by definition wrong when explaining history. Many factors go into explaining why people and the world’s governments reacted as they did to the coronavirus. It is, however, my contention that examining the inflationary policies pursued by central banks and governments are fundamental to understanding how the current corona hysteria developed.
2020’s Economic Depression Is Becoming An Endless Nightmare For Millions Of Americans – Michael Snyder
You may have noticed that a lot of people get offended by what I write. It is not something that I am purposely setting out to do, and I actually endeavor to get along with everyone as much as I can. But it is undeniable that my articles about our ongoing economic collapse directly contradict a lot of the narratives that are constantly being pushed by the mainstream media and many of our political, business and religious leaders.
There are so many people out there that want to believe that the future is going to be exceedingly bright, and even though 2020 has been a horrific economic catastrophe so far, there are a lot of optimists that believe that it is just a temporary blip on the road to tremendous prosperity.
Integration and reforms: Close encounters of the European kind – Nauro Campos, Vera Eichenauer, Jan-Egbert Sturm
Economists have long assumed a virtuous cycle between integration and reforms. Implementing structural reforms helps maximise gains from integration, while the deepening of integration would foster reforms. This column discusses new research on European integration, its relationship with reforms and economic growth. It finds that integration triggered product market, but neither labour nor financial market, reforms. It also shows that, to understand the effects of reforms on economic growth, sectoral differences are less important than country heterogeneity.
How Murray Rothbard’s Theory of Entrepreneur-Driven Progress Can Be Applied to Modern Businesses – Hunter Hastings
Rothbard establishes the principles of what he calls the progressing economy, one in which gross investment in capital goods is increasing, productivity is growing, and firms are making profits, indicating social affirmation that they are deploying resources in the ways best adjusted to the most urgent and evolving consumer needs. Specifically, firms are making an economic profit—returns higher than the going rate of interest derived from social time preference.
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.
Eerdere afleveringen van dit wekelijkse overzicht vindt u hier.