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Economische aanraders 12-07-2020

handelsrelatie EU-China, economische aanraders 0

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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Europe’s Bailouts Risk a Full-Blown Financial Crisis – Daniel Lacalle
6 juli

The measures implemented by governments in the eurozone have one common denominator: a massive increase in debt from governments and the private sector.
Loans lead the stimulus packages from Germany to Spain. The objective is to give firms and families some leverage to pass the bad months of COVID lockdowns and allow the economy to recover strongly in the third and fourth quarters. This bet on a speedy recovery may put the troubled European banking sector in a difficult situation.
Banks in Europe are in much better shape than they were in 2008, but that does not mean they are strong and ready to take billions of higher-risk loans. European banks have reduced their nonperforming loans, but the figure is still large at 3.3 percent of total assets according to the European Central Bank. Financial entities also face the next two years with poor net income margins due to negative rates and a very weak return on equity.
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***New East Asian trade blocs create tough choices for China – Peter Petri, Michael Plummer
9 juli

The US-China trade war has negatively affected global growth and trade prospects, redirecting supply chains and leading to inefficiencies. However, this column suggests that emerging mega-regional trade agreements, including the Comprehensive and Progressive Agreement on Trans-Pacific Partnership and the Regional Comprehensive Economic Partnership, have the potential to compensate for the trade war by reducing regional costs. Such agreements are likely to lead to deeper integration within Asia, especially among Japan, China, and Korea. They could also trigger further economic distancing between Asia and the US, and a large increase in the influence of China.
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Magical monetary theory full review – John H. Cochrane
5 juli

I read Stephanie Kelton’s book, The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy,” and wrote this review for the Wall Street Journal. Now that 30 days have passed I can post the whole thing.
I approached this task with an open mind. What I had heard of MMT has some overlap with fiscal theory of the price level, on which I work, and I hoped to see some commonality.
I was disappointed.
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***“Wild Ride to Nowhere”: APPL, MSFT, AMZN, GOOG, FB Soar to New High. Rest of Stock Market is a Dud, Has Been for Years – Wolf Richter
11 juli

The market has come to totally depend on the “Giant 5.” A scary out-of-whack weight on the way down.
The “Giant 5” – Apple, Microsoft, Amazon, Alphabet, and Facebook – had another good day on Friday, with their combined market capitalization rising by 0.6% to another new high of $6.64 trillion, continuing a spike that started on March 16 and now measures 62.2%. In dollar terms, five stocks gained $2.54 trillion in less than four months.
Since January 1, 2017, my “Giant 5 Index” has soared by 184%, or by $4.3 trillion, with two sell-offs or crashes or whatever in between.
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The Market Economy Has Been Replaced by a “Fiat Economy” – Yazid Suleiman
6 juli

The COVID-19 pandemic has torn the veil off what we can now can call a “fiat market. It has stripped away all pretense of a true market. Governments and central banks now create both supply and demand. Bailouts and subsidies are handed down so that zombie corporations can produce on the one hand, while welfare, universal basic income, and other handouts are distributed so that citizens can buy the products. Strictly speaking, this is a type of socialism.
In Europe, the European Central Bank’s (ECB) asset purchase programs currently stands just shy of €3 trillion. That is excluding its newly expanded €1.35 trillion Pandemic Emergency Purchase Program—equivalent to the entire GDP of Spain and considerably higher than that of the Netherlands. A big show was made of the Trump administration’s $4.5 trillion relief bill and the Fed’s $2.3 trillion program to “bolster” the economy. The G7 central banks have racked up asset purchases of $1.64 trillion in March and expect to top out at $6 trillion when all is said and done. Welfare and unemployment checks now pay more than salaries in many caess.
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Chinese Banks Preparing For “Worst Case” Scenario: Being Cut Off From SWIFT, Hong Kong Bank Runs – Tyler Durden
9 juli

In the latest escalation over China’s de facto annexation of Hong Kong, Reuters reports that Chinese state lenders are “revamping contingency plans” in anticipation of the soon to be enacted U.S. legislation (just waiting for Trump’s signature) that would penalize banks for serving officials who implement the new national security law for Hong Kong.
In a “worst-case scenario” under consideration by Chinese commercial megabanks Bank of China and Industrial and Commercial Bank of China (ICBC), the lenders are said to be looking at the possibility of being cut off from U.S. dollars or losing access to U.S. dollar settlements, two Reuters sources said.
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***What Makes You Think the Stock Market Will Even Exist in 2024? – Charles Hugh Smith
6 juli

Given the extremes of the stock market’s frauds and even greater extremes of wealth/income inequality it has created, tell me again why the stock market will still exist in 2024?
When I read a financial pundit predicting a bull market in stocks through 2024, blah-blah-blah, I wonder: what makes you think the stock market will even exist in 2024, at least in its current form?
Given the current trajectory of the real economy into the Greatest Depression while the Federal Reserve’s entire raison d’etre is to send stocks soaring to the moon forever and ever, what are the odds that this disconnect leads to a political rebellion against the Fed and its wealth inequality machine, the stock market?
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WTO negotiation and institutional reform priorities: Stakeholder perspectives – Matteo Fiorini, Bernard Hoekman, Petros Mavroidis, Douglas Nelson, Robert Wolfe
9 juli

The WTO membership faces many challenges, ranging from substantive rulemaking on policies generating trade conflicts to revitalising the multilateral dispute settlement system. This column reports on the results of a recent survey of the trade community regarding the priorities confronting the next WTO Director-General. There is a substantial degree of commonality in rank orderings of substantive issues for negotiation, institutional reform, and daily operations of the WTO, but underlying this are significant differences in rankings of issues and options across groups of respondents. Resolving the dispute settlement crisis is a clear priority for most respondents, especially government officials.
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How Central Banks Destroy Money’s Purchasing Power – Frank Shostak
9 juli

Most economists hold that a growing economy requires a growing money stock on grounds that growth gives rise to a greater demand for money that must be accommodated. Failing to do so, it is maintained, will lead to a decline in the prices of goods and services, which in turn will destabilize the economy and lead to an economic recession, or even worse, depression.
Since growth in money supply is of such importance, it is not surprising that economists are continuously searching for the optimum growth rate in money supply. For instance, followers of Milton Friedman—also known as monetarists—want the central bank to target the money supply at a fixed percentage. They hold that if this percentage is maintained over a prolonged period, it will usher in an era of economic stability.
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A little financial-econometric history – John H. Cochrane
6 juli

The issues that have cropped up in applying present value ideas to government finance, in my last post, caused me to write up a little financial-econometric history, which seems worth passing on to blog readers. The lessons of the 1980s and 1990s are fading with time, and we should avoid having to re-learn such hard-won lessons. (Warning: this post uses mathjax to display equations.)
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Transportation infrastructure and local growth: Historical evidence from the South of Italy – Emanuele Ciani, Guido de Blasio, Samuele Poy
11 juli

Large transportation infrastructure projects are considered a promising investment to spur economic growth in lagging areas by many policymakers. This column presents historical evidence that questions this assumption. It studies the most important Italian infrastructure project in the aftermath of WWII: the 440km freeway connecting the Southern regions of Italy. It finds, that while the freeway caused a significant reorganization of both economic activity and population from places far from the freeway to locations close to it, there is no evidence that it had any long-run effect on economic growth of the Southern region as a whole.
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Keynes vs. Say – Henry Hazlitt
10 juli

Keynes’s “greatest achievement,” according to his admirers, was his famous “refutation” of Say’s law of markets. All that it is necessary to say about this “refutation” has already been said by Benjamin M. Anderson, Jr.,1 and Ludwig von Mises.2 Keynes himself takes the matter so cavalierly that all he requires to “refute” Say’s law to his own satisfaction is less than four pages.
Yet some of his admirers regard this as alone securing his title to fame:
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The Surplus Process – John H. Cochrane
6 juli

How should we model surpluses and deficits? In finishing up a recent article and chapter 5 and 6 of a Fiscal Theory of the Price Level update, a bunch of observations coalesced that are worth passing on in blog post form.
Background: The real value of nominal government debt equals the present value of real primary surpluses,
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The Great American Shale Oil & Gas Massacre: Bankruptcies, Defaulted Debts, Worthless Shares, Collapsed Prices of Oil & Gas – Wolf Richter
10 juli

The bankruptcy epicenter is in Texas.
The Great American Oil Bust started in mid-2014, when the price of crude-oil benchmark WTI began its long decline from over $100 a barrel to, briefly, minus -$37 a barrel in April 2020. Bankruptcies of US companies in the oil and gas sector started piling up in 2015. In 2016, the total amount of debt listed in these filings hit $82 billion. Bankruptcy filings continued, with smaller dollar amounts of debt involved. In 2019, the shakeout got rougher.
And this year promises to be a banner year, as larger oil-and-gas companies with billions of dollars in debt collapsed, after having wobbled through the prior years of the oil bust.
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The Dangers Posed by State-Controlled Digital Currency – Claudio Grass
7 juli

It doesn’t require too dark an imagination to realize the gravity of the concerns over the digital yuan. China is a true pioneer when it comes to surveillance, censorship, and political oppression, and the digital age has given the state an incredibly efficient and effective arsenal. Adding money to that toolkit was a move that was planned for many years and it is abundantly clear how useful a tool it can be for any totalitarian regime. The ability to track citizens’ transactions, access their financial data, control and freeze the account of anyone that presents a potential threat, it all opens the door to the ultimate oppression: total control over private resources, over people’s livelihoods and their capacity to cover their basic needs.
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Huge Debt Payments at Worst Time for Canadian Oil Drillers – Tsvetana Paraskova
7 juli

“There’s a lot of extend, amend, and pretend with respect to finance documentation. But at some point the music will stop.”
The collapse in oil prices has significantly deteriorated Canada’s oil companies’ finances and has made repaying their debt more challenging. Over the past decade, Canadian firms have borrowed money to survive the previous oil crisis of 2015-2016 and boost production post-crisis. But now the second price collapse in less than five years is leaving Canada’s oil patch, especially the smaller players, extremely vulnerable as debt maturities approach.
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***Weber revisited: The Protestant ethic and the spirit of nationalism – Felix Kersting, Iris Wohnsiedler, Nikolaus Wolf
11 juli

Max Weber famously hypothesised that the Protestant work ethic fostered modern economic development. Does religion matter for economic success? This column revisits Weber’s hypothesis in the context of 19th-century Prussia. Protestantism did not matter for savings, literacy rates, or income levels across Prussian counties after 1870. Instead, there are large differences between ethnic groups, likely due to ethnic discrimination. Nationalism must be taken into account to understand Weber’s writings.
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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.

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