Economische aanraders 11-02-2018
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.
Global trade and the dollar – Emine Boz, Gita Gopinath, Mikkel Plagborg-Moller
In international macroeconomics, it is typically assumed that the exchange rate between two trading partners matters most for trade prices, quantities, and terms of trade. This column presents evidence supporting an alternate view – that a country’s exchange rate relative to the US dollar is most important. This is because invoicing in dollars is common, even when the US is not part of a transaction. The findings have important implications for the conduct of monetary and exchange rate policies.
When Will Credit Markets React? – Leonard Hyman, Willian Tilles
The US, like many other countries, has a large demographic cohort (baby boomers) entering retirement. This new class of retirees, like those before them, will request and presumably receive their social security benefits. And, as this cohort ages its medical bills will likely increase, thus increasing outlays for federal programs like Medicare and Medicaid. Elementary, as Holmes might have said.
The US Congress recently approved a dramatic reduction in the corporate tax rate from 35% to 20%. The consensus view is that this and other provisions in the new tax law will reduce federal revenues and add about $1.5 trillion to future federal budget deficits over the next decade. (A budget compromise proposed shortly afterwards would add several hundred billion more to the deficit.)
Stock Gyrations – John H. Cochrane
Is this 1929, the beginning of the end? Or 2007? Is it 1974, annus horribilis in which the stock market drifted down 40% having something to do with stagflation, and did not recover until the 1980s? Is it 1987, a quick dip followed by recovery in a year? Or just an extended version of the flash crash, when the market went down 10% in a few hours, and bounced back by the end of the day? Are we in a “bubble” that’s about to burst? How much does this have to do with the Fed? Of course I don’t know the answer, but we can think through the logical possibilities.
“Stocks No Longer Make Sense To Me” – Here’s Why Quants Are Embracing Bitcoin – Tyler Durden
Since bitcoin first seeped into the public consciousness in 2013, the stereotypical image of the cryptocurrency trader is the 25-year-old tech bro who uses phrases like “YOLO” and “FOMO” when describing his trading strategy and general investing philosophy.
In more recent years, the image of the mom-and-pop crypto trader has taken hold, as Mrs. Watanabe – the archetypal Japanese and South Korean house wife once known for trading foreign exchange – has migrated to trading bitcoin and ethereum.
The State of the American Debt Slaves – Wolf Richter
It was one gigantic party. But wait…
Total consumer credit rose 5.4% in the fourth quarter, year over year, to a record $3.84 trillion not seasonally adjusted, according to the Federal Reserve. This includes credit-card debt, auto loans, and student loans, but not mortgage-related debt. December had been somewhat of a disappointment for those that want consumers to drown in debt, but the prior months, starting in Q4 2016, had seen blistering surges of consumer debt. Think what you will of the election – consumers celebrated it or bemoaned it the American way: by piling on debt.
Brexit Has Reached the Point of No Return – Alasdair Macleod
The actual negotiations could easily run right up to the deadline in March 2019, when Britain is due to leave. If no agreement is forthcoming by that date, both sides might agree to extend negotiations, but that only seems likely if there is a good prospect of an agreement. Otherwise, Britain leaves and falls back on WTO trading rules, or does away with tariffs altogether. This is seen by the EU negotiators as a threat to Britain, believing it is Britain which is running out of time. Therefore, if Britain wants a trade deal, she must make it clear that a no-deal option is attractive to her. And, be it clearly understood, the negotiations only cover a minor part of the UK’s overall economy.
Will Upcoming Brexit Negotiation Round Finally Cause Hard Core Brexiter Heads To Explode? – Yves Smith
Brexit enthusiasts have managed to come up with such creative forms of denialism that the word “insanity” does not being to do it justice. Their main tactic so far has been a political version of Schrodinger’s cat. As long as they can keep the lid shut on the Brexit box, they can pretend it amounts to whatever version of Brexit they’d most like to have, even though the particulars, as we and others have pointed out, are internally contradictory.
However, the problem with the Scrodinger’s cat approach, of refusing to open the box and deal with actual conditions (like feed the feline or bury it), is it is putting the UK in the worst imaginable position on every level. The UK is failing to do any contingency planning. The UK is refusing to advance proposals and policy positions, and does so only under duress, and even then typically as napkin doodles, or as petulant reactions to EU efforts to move the talks forward by putting its own proposals on the table. This is making the odds of worst case scenario outcomes higher with every passing day.
Dalio’s $13 Billion Short: Bridgewater Unveils Its Biggest Ever Short Position – Tyler Durden
Last October, Italy’s government was angry when the world’s largest hedge fund, Ray Dalio’s Bridgewater unveiled it had amassed a sizable $713 million short against Italian financial stocks, its biggest disclosed bearish bet in Europe.
Then last week, and just one month before Italy’s March 4 elections – which the broader market stubbornly refuses to acknowledge are a risk factor – Bridgewater tripled down on its bearish bets against Italian banks and insurers, making the position the largest thematic short carried by the world’s biggest hedge fund.
Recent developments in the regulatory treatment of sovereign exposures – Michele Lanotte, Pietro Tommasino
Late last year, the Basel Committee decided to maintain the status quo regarding regulation of banks’ sovereign debt holdings. This column summarises the reasons to be cautious of stricter regulation of banks’ sovereign exposures. Theory and experience suggest small net benefits from such a reform, with possible increases in tail risks. The best instrument to tackle the problem is not microprudential regulation, but sounder public finances and the completion of the banking union.
Three Crazy Things We Now Accept as “Normal” – Charles Hugh Smith
How can central banks “retrain” participants while maintaining their extreme policies of stimulus?
Human habituate very easily to new circumstances, even extreme ones. What we accept as “normal” now may have been considered bizarre, extreme or unstable a few short years ago.
Three economic examples come to mind:
1. Near-zero interest rates. If someone had announced to a room of economists and financial journalists in 2006 that interest rates would be near-zero for the foreseeable future, few would have considered it possible or healthy. Yet now the Federal Reserve and other central banks have kept interest rates/bond yields near-zero for almost nine years.
How Out-Of-Whack are US Trade Relationships? 2017 Trade Deficit Worst since 2008 – Wolf Richter
Trade deficit in non-petroleum products hit a record of $734 billion.
2017 was a banner year for the US trade deficit, according to the Commerce Department’s report today. Corporate America’s supply chains weave all over the world in search of lower costs. Other countries have an “industrial policy” designed to produce trade surpluses for them. This combo ballooned the US trade deficit in goods and services to $566 billion, up by $61 billion, or 12%, from 2016. It was the worst trade deficit since 2008.
While exports of goods and services rose by $121 billion, to $2.33 trillion, imports surged by $182.5 billion, to $2.90 trillion.
The Chinese banking system: Much more than a domestic giant – Eugenio Cerutti, Haonan Zhou
Chinese banks have continued to expand rapidly both domestically and abroad. Together, they constitute the largest banking sector in the world by far. This column places the Chinese banking system in a global context. Although very small relative to their domestic claims, Chinese banks’ foreign claims are substantial for many borrower countries in Asia, Africa, and the Caribbean in particular. Many of these banking connections are related to Chinese outward foreign direct investment, with fewer related to trade linkages.
Why Good Economics Requires Good Theory – Frank Shostak
It is generally held that by means of statistical and mathematical methods one can organize historical data into a useful body of information, which in turn can serve as the basis for the assessments of the state of the economy. It is also held that the knowledge secured from the assessment of the data is likely to be of a tentative nature since it is not possible to know the true nature of the facts of reality.
Some economists such as Milton Friedman held that since it is not possible to establish “how things really work,” then it does not really matter what the underlying assumptions of a theory are. On this way of thinking, what matters is that the theory can yield good predictions.
The United States Is a Tax Haven for Global Investors…and that’s Good for America – Daniel J. Mitchell
According to bureaucrats at the Paris-based Organization for Economic Cooperation and Development, so-called tax havens are terrible and should be shut down. Their position is grossly hypocritical since they get tax-free salaries while pushing for higher taxes on everyone else, but not very surprising since the OECD’s membership is dominated by increasingly uncompetitive European welfare states.
Many economists, by contrast, view tax havens favorably since they discourage politicians from over-taxing and over-spending (thus protecting nations from “goldfish government“).
Economies of States, Economies of Cities – Sylvia Merler
Both in Europe and the US, economists are starting to notice how the economies of cities have been sometimes diverging from the economies of states. While some areas thrive, others may be permanently left behind. Maybe it is time to adopt a more clearly sub-national perspective. We review recent contributions on this issue.
In this week’s Free Lunch, Martin Sandbu makes the very interesting claim that “all economics is local”, and that sustainability of economic strategies depend on their local effects. Many studies show that intensifying economic vulnerability at the local or regional level is closely associated with anti-establishment votes for political disruption or for extremist or populist parties. The deindustrialisation that rich countries have undergone at the hands of technological change (and to a lesser extent globalisation) has created a class of people who are economically left behind, rebelling against the liberal economic and political order.
Increasingly fit again: The euro area economy is shedding the crisis legacies – Marco Buti, Björn Döhring, José Leandro
The outlook for the euro area economy depends to a large extent on whether the impact of the crisis will turn out to be permanent or transitory. This column attempts to chart out the path ahead, starting from what different narratives of the ‘atypical recovery’ imply about the further trajectory of GDP and inflation. In view of remaining slack, and barring an exogenous shock or policy mistakes, there is scope for solid GDP growth above potential for some time. The factors that should eventually drive an increase in core inflation are gaining force, but only gradually. The current supportive policy mix is thus appropriate for the euro area as a whole, but reforms that raise productivity and increase the economy’s resilience to shocks should be accelerated.
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