Economische aanraders 10-06-2018
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 Absurdity of Keynesian Economics – Roger W. Garrison
The economics of John Maynard Keynes as taught to university sophomores for the last several decades is now nearly defunct in theory but not in practice. Keynes’s 1936 book, The General Theory of Employment, Interest, and Money, portrayed the market as fundamentally unstable and touted government as the stabilizer. The stability that allegedly lay beyond the market’s reach was to be supplied by the federal government’s macroeconomic policymakers—the president (with guidance from his Council of Economic Advisers), the Congress, and the Federal Reserve.
The acceptance in the economics profession of fundamentalist Keynesianism peaked in the 1960s. In recent decades, enthusiasm for Keynes has waxed and waned as proponents have tried to get new ideas from the General Theory or to read their own ideas into it. And although the federal government has long since become a net supplier of macroeconomic instability, the institutions and policy tools that were fashioned to conform to the Keynesian vision have become an integral part of our economic and political environment.
Update on the Fed’s QE Unwind – Wolf Richter
Just as the Fed created money to buy Treasuries and MBS during QE, it now destroys money as these securities “roll off” the balance sheet.
It took the Fed five-and-a-half years to amass $3.4 trillion in Treasury securities and mortgage-backed securities (MBS) during QE, including the year 2014 when it was “tapering” QE to zero. The Fed is now reversing that process, including the opposite of “tapering,” as it is ramping up its QE unwind.
The Three Crises That Will Synchronize a Global Meltdown by 2025 – Charles Hugh Smith
We’re going to get a synchronized global dynamic, but it won’t be “growth” and stability, it will be DeGrowth and instability.
To understand the synchronized global meltdown that is on tap for the 2021-2025 period, we must first stipulate the relationship of “money” to energy: “money” is nothing more than a claim on future energy. If there’s no energy available to fuel the global economy, “money” will have little value.
The conventional economists assure us that energy is now a small part of the overall economy, so fluctuations in energy prices will have a limited effect on global prosperity. But what’s left of global prosperity when energy is unable to meet current demand at any price that consumers can afford?
Should the Fed Print More Money When “Demand for Money” Rises? – Frank Shostak
For most economists and commentators the main role of the Fed is to keep the supply and demand for money in equilibrium. Whenever an increase in the demand for money occurs — in order to maintain the state of equilibrium — it is held that the Fed must increase the money supply as a necessary action in order to keep the economy on a path of economic and price stability.
The accommodation of the increase in the demand for money is not considered as money printing and therefore not harmful to the economy. That is, this sort of increase, it is held, does not set in motion the boom-bust cycle as long as the growth rate of money supply does not exceed the growth rate in the demand for money.
As good as a random walk: Inflation forecasting in emerging market economies – Roberto Duncan, Enrique Martínez García
Understanding what helps forecast inflation is important for any modern economy, but analysis remains limited in the emerging market economy context. This column presents recent findings on inflation forecasting in such economies, showing that a variant of the simple random walk model specification seems difficult to beat. The strong forecasting performance of this model can be observed even though many emerging economies have adopted a de facto or de jure inflation-targeting regime.
How Chinese Investors Inflate Housing Markets in the US, Canada, and Australia, as Governments Try to Stem the Tide – Wolf Richter
The “waterbed effect” of money flows.
Top residential real estate brokerages in the US have been promoting US homes to investors in China for years. Brokerage firms in Canada, Australia, New Zealand, and other countries have done the same. Commissions are at stake! They have set up units in China and are partnering with Chinese real estate portals, such as Juwai.com.
Warren Buffett’s Berkshire Hathaway HomeServices, a subsidiary of HomeServices – the second largest residential brokerage in the US – entered the fray belatedly a year ago with a marketing agreement with Juwai.com “to syndicate all of its franchisees’ residential listings.”
And not just in the trophy cities on the coasts, but all of Berkshire’s listings, anywhere.
It’s time the world’s economists woke up to reality – Richard Murphy
Martin Sandbu wrote two articles in the FT last week (very paywalled) that look at issues arising from this weekend’s referendum in Switzerland on banking reform.
Let me be clear: I oppose the proposed reform because I think it embraces all the worst features that Positive Money propose for the banking system and if adopted this would, firstly, be harmful to the Swiss economy and, secondly, be prejudicial to the necessary real monetary reforms that are required in most countries at present. I explain why in some detail, here.
Bizarrely, Sandbu has, despite his obvious overall sympathy with reform, managed to write the pieces without the slightest reference to modern monetary theory. It is as if he, like so many economists, thinks that money exists as a phenomenon separate from the economy as a whole. I’ve already noted similar traits from The Economist and John Kay in the last few days. And it is as if he, like they, thinks, quite erroneously, that money can have a value as if it is a commodity in its own right.
Sandbu gets this wrong. Money has no value of its own, and it never has. Both physical cash and ancient and modern intangible forms of money (to cover all forms of ledger based monetary creation – which are in essence identical however the record has been maintained) get their value from recording debt. A currency achieves that by being issued into existence by a government that accepts it back in settlement of legally due tax obligations. Bank created money, which because it is always denominated in a government created currency is always a derivative of it and so of secondary standing, exists because of the debt that exists from a lender to the bank that extended them credit.
China is in Trouble – Ronald-Peter StöferleMark, J. Valek
Before we discuss the economic situation of China, a few words about China’s strongman, Xi Jinping. The “new Chinese emperor” has engineered a meteoric rise. He started off as simple rural laborer but is now the most powerful Chinese president since Deng Xiaoping. Such a career path requires strength, tact, and probably a dash of unscrupulousness.
While the rulers of China have been able all along to hedge their plans over longer periods than their Western counterparts have, the new legal situation has extended this planning horizon even further.1 In comparison with those of Western economies, China’s countermeasures against the crisis in 2008 were significantly more drastic. While in the US the balance sheet total of the banking system increased by USD 4,000bn in the years after the global financial crisis, the balance sheet of the Chinese banking system expanded by USD 20,000bn in the same period. For reference: This is four times the Japanese GDP.
How firms shape export performance – Alessandra Bonfiglioli, Rosario Crinò, Gino Gancia
To date there has been little systematic evidence on the role of firms in explaining country performance. This column explores how the products of firms from all over the globe fare in competition in the US market. Results show that the countries that capture larger market shares have more exporters, producing higher-quality products, with a more dispersed distribution of firm attributes. Larger and richer markets are characterised by a more dispersed distribution of sales and quality, and a higher incidence of superstar firms.
The turnaround of the Portuguese economy: Two decades of structural changes – Mário Centeno, Miguel Castro Coelho
Portugal has turned a corner. Having gone through a mild boom, a slump, and a severe recession, all packed into less than two decades, the Portuguese economy has re-emerged with a newfound strength. This column examines this recovery in detail, focusing on important structural reforms that have taken place in the last couple of decades in key areas such as skills, investment, export orientation, labour market, financial intermediation, and public finances. The effects of these reforms were compounded by time as well as efforts to reignite demand.
***Venezuela’s Oil Meltdown Defies Belief – Nick Cunningham
Even the most pessimistic output scenarios could turn out to be too hopeful.
Venezuela might have to declare force majeure on its oil exports as production plunges and its ports are unable to ship enough crude. The ongoing meltdown in Venezuela’s oil sector could tighten the oil market more than expected.
Reuters News/idAFL2N1T728R”>reported Tuesday that Venezuela is considering declaring force majeure, a legal declaration made in extraordinary circumstances to basically get out of contractual obligations. In other words, Venezuela’s PDVSA is essentially prepared to say that it can’t supply the oil that it promised.
The utter collapse of the country’s oil production is obviously a big factor in PDVSA’s inability to ship enough oil. Output is down below 1.5 million barrels per day and falling fast.
***The Gently Rotting Debt-Ridden EU – Alasdair Macleod
The EU as a political construction is in a state of terminal decay. We know this for one reason and one reason alone: its core principle is the state is superior to its people. A system of government can only work over the longer term if it recognises that it is the servant of the people, not its master. It matters not what electoral system is in place, so long as this principal is adhered to.
ACA dropouts – John H. Cochrane
Half of the people who sign up for Obamacare (ACA) get a flurry of medical care, then drop out before a year is over. They can always sign up again if they need to. People who stay on insurance tend to be those who have ongoing chronic and expensive conditions that need continual care. The implications for the viability of such insurance are not good.
This is the interesting conclusion of a new paper, “Take-Up, Drop-Out, and Spending in ACA Marketplaces” by Rebecca Diamond, Michael Dickstein, Tim McQuade, and Petra Persson. One good summary graph:
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