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Economische aanraders 10-05-2020

economische aanraders

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.

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One Bank Explains Why QE No Longer Stimulates The Economy And Only Leads To Higher Stock Prices – Tyler Durden
9 mei

Even some of the most ardent supporters of the fraud that is Keynesian economics now admit the entire modern economic system is on the verge of collapse for one main reason: the marginal utility of debt is collapsing, with ever more debt required to generate an increase in underlying GDP.
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How All That Extra Stimulus Money Could Lead to Price Inflation – Thorsten Polleit
6 mei

In an effort to “fight” the consequences of the politically orchestrated “lockdown,” the Fed pumps vast amounts of money into the economy. It injects base money into the banking system. It also monetizes outstanding debt and finances the US administration’s deficit spending policy by issuing new money. This not only increases “excess reserves” in the banking system, but also ramps up the money stock in the hands of firms and consumers.
The goal is to keep people liquid, to make up for lost profits and incomes. The Fed’s money creation policy is already showing its first effects. In late April 2020, the money stock M1 grew 26 percent year-on-year, while the money stock M2 was up 15.9 percent against last year. The central bank is heavily increasing the quantity of money while economic output contracts—Isn’t that inflationary? It sure is, and it would be false to think otherwise.
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Don’t do it again! The Swedish experience with negative central bank rates in 2015-2019 – Fredrik N G Andersson, Lars Jonung
8 mei

Negative interest rates were once seen as impossible outside the realm of economic theory. However, recently several central banks have imposed such rates, with prominent economists supporting this move. This column investigates the actual effects of negative interest rates, taking evidence from the Swedish experience during 2015-2019. It is evident that the policy’s effect on the inflation rate was modest, and that it contributed to increased financial vulnerabilities. The lesson from the experiment is clear: Do not do it again.
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Markets work even in crisis – John H. Cochrane
7 mei

A lovely result of the corona virus outbreak has been how we see stifling aspects of regulations. Right left and center are figuring out that the regulations need reform. Now, the forces for regulatory stagnation are always strong, so the insight may fade with the virus. Still, let us enjoy it while it lasts.
The trouble with regulations is that, unlike “stimulus,” the action is all in minute detail not grand sweeping plan.
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Money Velocity and Prices – Frank Shostak
9 mei

The yearly growth rate of US AMS jumped to 26.5 percent in April—a record high figure since 1960 (see chart). Now, during the period from January 1960 to April 2020 the average time lag between changes in the money supply and changes in the Consumer Price Index (CPI) stood at twenty-nine months. I believe that this raises the likelihood that a visible rebound in the momentum of the CPI could emerge from early 2022 (see chart).
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US National Debt Spiked by $1.5 trillion in 6 Weeks, to $25 trillion. Fed Monetized 90% – Wolf Richter
6 mei

I’d never imagined I’d ever see this sort of spike, though in recent years I added an upward arrow with “Debt out the wazoo” to my charts, not realizing just how factually accurate this technical term would become.
The US gross national debt – the total of all Treasury securities outstanding – jumped by $1.05 trillion with a T in the four weeks since April 7 and by $1.54 trillion in the six weeks since March 23, to $25.06 trillion, the Treasury department reported today.
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The case for permanent stimulus – Paul Krugman
10 mei

Policymakers are frantically trying to come up with a policy response to the Covid-19 crisis. This column, taken from a recent Vox eBook, argues that there is a very good case for putting a sustained, productive programme of stimulus in place as soon as possible, instead of scrambling to come up with short-term measures every time bad things happen.
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Former JPMorgan Economist: We Are Heading Towards A Weimar Republic Inflation Setup – Submitted by a former JPMorgan economist who wishes to remain anonymous
9 mei

The everything bubble
Readers will have anticipated the bursting of the bubble that has been re-inflating ever since 2009. Ultra-loose monetary policy, coupled with deflationary pressures from increased aggregate supply and investors chasing yield at ever higher risk, meant that almost all asset classes had reached all time highs just before entering the current bear market.
That there is a bubble, a massive one, is unquestionable. Readers will further have anticipated that it didn’t have to be a global pandemic to burst this bubble. This bubble was practically looking for a prick – any prick – to burst it. Whether it was a credit event, liquidity shortages that led to bankruptcies, a terrorist attack, a natural disaster or a bat: markets had reached a level of fragility where they could not cope with the materialising of such a tail risk event.
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How This Crisis Differs from the 2008–2009 Financial Crisis – Arkadiusz Sieroń
9 mei

There are several important differences between the global financial crisis of 2007–08 (GFC) and the coronavirus crisis (CC).
Origin and Nature of the Crisis
The GFC resulted from financial imbalances, primarily the housing bubble, while the CC was triggered by the external negative shock (the pandemic and the following economic shutdown) that dramatically reduced the labor supply. In other words, the GFC was a financial crisis, a bust phase of the business cycle triggered by a misallocation of resources toward housing and construction sectors, while the CC is a shock to the real economy triggered by the health crisis and the containment measures.
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***How COVID-19 is transforming the world economy – Kemal Kilic, Dalia Marin
10 mei

In the wake of the Global Crisis, uncertainty in the world economy led many firms to reassess their business models. Rather than relying on global supply chains, an increasing number of firms invested in robots, which prompted a renaissance of manufacturing in industrialised countries. This column argues that changes in the world economy due to COVID-19 make a V-shaped recovery from the coming recession unlikely. Instead, COVID-19 will accelerate the process begun after the Global Crisis by encouraging firms to re-shore activity back to rich countries.
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Money Creation—Not Low Interest Rates—Is Behind the Boom-Bust Cycle – Joseph T Salerno
5 mei

In a recent article entitled “Where Are All the Austrian Scholars’ Yachts?” John Tamny has criticized Austrian economists, and Mark Thornton in particular, for their skepticism regarding the relatively “ebullient stock market” in the midst of the pandemic. Mark Thornton responded to Tamny’s main argument in an earlier post. In this post, I will address two serious errors that underlie Tamny’s argument.
The first error involves a common misinterpretation of Austrian business cycle theory (henceforth ABCT). Tamny represents Austrian cycle theorists as claiming that stock market booms and bubbles are caused by the central bank arbitrarily reducing interest rates. But this is a misunderstanding. According to ABCT, it is not the arbitrary lowering of interest rates per se that causes an inflationary boom, asset bubbles, and a subsequent recession. Rather, it is the issue of “fiduciary media,” or bank deposits unbacked by reserves, that are created via new business loans that actuate the boom-bust cycle. The decline of interest rates on loans is merely one of the results of this expansion of money and credit and is not essential to the process. On the one hand, banks could arbitrarily lower the interest rate on loans and this would not initiate an inflationary boom; on the other hand, banks could leave the interest rate unchanged but lend out newly-created bank reserves by lowering credit standards, which would ignite a boom and asset price inflation. Mises emphasized this point in 1949 (Human Action, p. 789n5):
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“Unprecedented Crisis” – Global Luxury Goods Market Collapses, No Recovery For Years – Tyler Durden
9 mei

New findings published in “Bain & Company Luxury Study 2020 Spring Update” this week suggest a collapse in the global luxury goods market is underway with no recovery for several years, shredding any hope that a V-shaped recovery will be seen in the back half of 2020.
The report says the plunge of travel and tourism in all key markets has triggered “an unprecedented crisis” for companies operating in the luxury goods space. Claudia D’Arpizio, a Bain & Company partner and lead author of the report, said jewelry, watches, cosmetics, clothes, and accessory sales will drop 25% in 1Q20, and continued lockdowns across the world will lead to further declines in 2Q20. Those declines, she noted, could be in excess of 50-60% in the three months ending in June. Her full-year estimate is a contraction between 20-35%.
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Service Sector Falls Off Cliff in the Eurozone, Manufacturing Not Far Behind – Wolf Richter
6 mei

It will likely take “several years before the output lost due to the virus outbreak is fully regained.”
“At this stage, we can only tentatively map out the scale and gravity of the coronavirus shock to our economies. While the immediate fallout will be far more severe for the global economy than the financial crisis, the depth of the impact will depend on the evolution of the pandemic, our ability to safely restart economic activity and to rebound thereafter,” the European Commission said in its Spring 2020 Economic Forecast.
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Austrian School Scholars Are Right to Be Worried about This Economy – Mark Thornton
4 mei

Thanks to the great John Tamny for shining a positive light on our current circumstances in “Where Are All the Austrian Scholars’ Yachts?” (RealClearMarkets, April 30). We do share a long-term optimistic view of capitalism, and Ludwig von Mises himself said that access to stock markets and financial markets was a defining characteristic of capitalism! However, central banks and their fiat money, like the Fed and the US dollar, are definitely not part of capitalism.
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Southern European and emerging market firms are under severe distress – Erica Bosio, Simeon Djankov
6 mei

With lockdown measures in place almost worldwide now, cash-flow represents a significant concern for firms across multiple sectors. It remains to be seen exactly which types of business will be able to weather the coming storm. This column estimates the survival time of nearly 7,000 firms in a dozen Southern European and emerging market economies. Under the assumptions that firms have no incoming revenues, the median survival time across industries ranges from 8 to 19 weeks. Once collapsed export demand is taken into account, the median survival time falls to between 8 and 14 weeks.
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How Government Spending Can Make the Debt Burden Look Smaller than It Really Is – Francesco Brunamonti
7 mei

In economics, numbers without context are often difficult to understand. The price of apples can only be understood when compared to the price of oranges, or to your salary, or to yesterday’s price. This is especially true with astronomically high numbers, such as $23 trillion. As of April 16, 2020, the US national debt1 stands at this amount. If we split it evenly among the working-age US population (15–64), it corresponds to a lump-sum tax of $118,000 per person.2 The national debt is almost always reported as a fraction of the gross domestic product (GDP). What is not always known is how these quantities are defined, and here lies my interest.
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China, climate and COVID-19: Managing subsidy spillovers – Bernard Hoekman, Douglas Nelson
8 mei

Prior to the re-emergence of tariff nationalism as espoused by the Trump administration, subsidies were becoming a central source of trade tensions between major economies. The prospect of trade conflicts associated with the use of such instruments to combat climate change was increasing. Policy responses to the COVID-19 pandemic have led to a massive increase in subsidisation of firms in many countries. This column argues for a revisit of current approaches to addressing subsidy conflicts. The need for cooperation between the major economies to manage the international competitive spillovers of subsidies was evident pre-COVID-19. It has now become much more urgent.
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***How Governments Broke the Oil Market – Daniel Lacalle
5 mei

The Organization of the Petroleum Exporting Countries (OPEC) and its partners have been cutting production since September 2016. Between September and November 2016 they cut production by more than 1.7 million barrels a day, a historical cut that was wrongly prolonged throughout the expansionary phase of the global economy. In December 2018 they cut production again.
OPEC’s was trying to artificially inflate the price of oil. But no oil-producing country lost money at the 2016 price; the only thing they could not afford was to pay huge subsidies, civil servants, and non-oil expenses that many OPEC members finance with export earnings.
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Commercial Real Estate Already Gets Hit in Europe: Prices for Retail Properties Plunge, Office Prices Sink – Wolf Richter
4 mei

“Wide bid-ask spread points to lower values” going forward. It just started.
Over the past few years, the various sectors of commercial real estate have split into different trajectories, with some property types, such as industrial and office, rising to new highs, and with retail properties dropping further and further. Then came the issues surrounding Covid-19 and the lockdowns.
The trajectories suddenly turned into the same direction: down for all, but to different degrees, some sectors barely ticking down and other sectors dropping more sharply. And retail properties plunged.
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The COVID Stimulus is the Government’s Latest Rejection of Say’s Law – James Talocka
8 mei

The fiscal and monetary response to the economic shutdown embodies the federal government’s most recent rejection of Say’s law of markets. Contrary to the actions taken and the assurances made by these authorities, the economic fallout from COVID-19 is not due to a scarcity of money, but a scarcity of goods and services.
Although J.B. Say developed his law of markets to dispel the idea of general overproduction, he also captures the shortcomings and consequences of policymakers’ response to the virus. Say’s law brings to light the fact that the supply of a good is what constitutes demand. In other words, it is production alone that brings about the means for consumption. Say reminds us that there is no need to worry about a lack of consumption, because production always falls short of man’s wants. This is especially true under current economic conditions.
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Why Assets Will Crash – Charles Hugh Smith
4 mei

This is how it happens that boats that were once worth tens of thousands of dollars are set adrift by owners who can no longer afford to pay slip fees.
The increasing concentration of the ownership of wealth/assets in the top 10% has an under-appreciated consequence: when only the top 10% can afford to buy assets, that unleashes an almost karmic payback for the narrowing of ownership, a.k.a. soaring wealth and income inequality: assets crash.
Most of you are aware that the bottom 90% own very little other than their labor (tradeable only in full employment) and modest amounts of home equity that are highly vulnerable to a collapse of the housing bubble. (The same can be said of China’s middle class, only more so, as 75% of China’s household wealth is in real estate, more than double the percentage of wealth held in housing in U.S. households.)
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***Be Thankful for Those Who “Only Do It for the Money” – Gary Galles
6 mei

At least since I first read George Orwell’s Politics and the English Language, I have been a student of the use of weasel words. I have joined what he called the “struggle against the abuse of language,” because “Political language…is designed to make lies sound truthful…and to give an appearance of solidity to pure wind.”
I even found the phrase’s origins interesting. As explained by phrases.org, “It has long been a widespread belief that weasels suck the yolks from bird’s [sic] eggs, leaving only the empty shell. This belief is the basis of the term ‘weasel words’.” And although that idea can be traced to Shakespeare’s mentions of weasels, the phrase’s first known use was in 1900, near the beginning of the Progressive Era, during which even the word progress clearly became a weasel word (moving forward in time does not imply societal improvement).
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