Economische aanraders 12-08-2018
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.
We’ll Pay All Those Future Obligations by Impoverishing Everyone (How to Destroy Our Currency In One Easy Lesson) – Charles Hugh Smith
The only way to pay all these future obligations is by creating new money.
I’ve been focusing on inflation, which is more properly understood as the loss of purchasing power of a currency, which when taken to extremes destroys the currency and the wealth/income of everyone forced to use that currency.
The funny thing about the loss of a currency’s purchasing power is that it wipes out every holder of that currency, rich and not-so-rich alike. There are a few basics we need to cover first to understand how soaring future obligations–pensions, healthcare, entitlements, interest on debt, etc.–lead to a feedback loop which will hasten the loss of purchasing power of our currency, the US dollar.
How The Global Trade Contraction Begins – MN Gordon, annotated Pater Tenebrarum
The world grows increasingly at odds with itself, with each passing day. Divided special elections. Speech censorship by Silicon Valley social media companies. Increased shrieking from Anderson Cooper. You name it, a great pileup is upon us.
It was probably Putin’s fault (just a wild guess) [PT]
From our perch overlooking San Pedro Bay, the main port of entry for Chinese made goods into the USA, facets of the mounting economic catastrophe come into focus. These elements, even for the most untrained of eyes, are impossible to miss.
To meet the relentless expansion of international trade, berths have been widened, and channels have been deepened to accommodate the definitive absurdity of perpetual credit creation: The CMA CGM Benjamin Franklin.
ECB Fears Contagion from Turkish Lira Collapse, Bank Stocks Plunge – Don Quijones
On Friday, the Turkish Lira plunged 15% against the US dollar. Over the past two days, it has plunged 18%. Over the past four months — shown in the chart below — it has plunged 38%.
Now even the ECB is beginning to fret about the potential impact the plummeting Turkish Lira may have on Eurozone banks that are heavily exposed to Turkey’s economy via large amounts in loans — much of it in euros — through banks they acquired in Turkey. Given the plunge in the lira, companies have trouble servicing their euro loans and are beginning to default. And loans in local currency are plunging in value along with the currency. This is how the currency crisis in Turkey, which is turning into a debt crisis, could set off contagion effects among banks in France, Spain and Italy — a risk we have been exposing for two years.
Protectionism and the business cycle – Alessandro Barattieri, Matteo Cacciatore, Fabio Ghironi
Populist politicians argue that protectionism stimulates the domestic economy. This column uses data on temporary trade barriers from antidumping investigations to show that when small open economies have imposed protectionist measures, it has caused inflation to rise and real economic activity to fall. Protectionism has been costly even when used temporarily, even for economies stuck in liquidity traps, and regardless of the flexibility of the exchange rate.
Who will pay unfunded state pensions? – John H. Cochrane
Homeowners. So says a nice WSJ op-ed by Rob Arnott and Lisa Meulbroek, and a proposal by Chicago Fed Economists Thomas Haasl, Rick Matton, and Thomas Walstrum.
The latter was a modest proposal, in the Jonathan Swift tradition. Despite Crain’s Chicago Business instantly labeling it “foolish,” “inhumane,” and “the dumbest solution yet, the first article points out its inevitability. If indeed courts will insist that benefits may not be cut, then state governments must raise taxes, and this is the only one that can do the trick.
States can try to raise income taxes. And people will move. States can try to raise business taxes. And businesses will move. What can states tax that can’t move? Only real estate. If the state drastically raises the property tax, there is no choice but to pay it. You can sell, but the new buyer will be willing to pay much less. Pay the tax slowly over time, or lose the value of the property right away in a lower price. Either way, the owner of the property on the day the tax is announced bears the burden of paying off the pensions.
The Fantasy of “Balanced Returns” Funding Retirement – Charles Hugh Smith
Consider how a “balanced portfolio” yielding “balanced returns” worked out for middle class retirees in Venezuela.
The fantasy that a “balanced portfolio” yielding “balanced returns” will fund a stable retirement for decades to come is widely accepted as a sure thing: inflation will stay near-zero essentially forever, assets such as stocks and bonds will continue yielding hefty income and capital gains, and all the individual or fund needs to do is maintain a “balanced portfolio” of various asset classes that yield “balanced returns,” i.e. some safe “value” lower-yield returns and some higher risk “growth” returns.
This fantasy is based on the belief that yields will exceed real inflation for decades to come. That is, if inflation is 2%, and the average yield of a “balanced portfolio” is 6%, then the inflation-adjusted return is 4% annually–not great, but enough to secure retirement income.
What few dare ask is: what happens if inflation is 7% and yields drop to 2%? Then the retirement fund loses 5% of its purchasing power every year. In a decade, the fund’s value will decline by roughly half.
Economic policy for artificial intelligence – Ajay Agrawal, Joshua Gans, Avi Goldfarb
Regardless of whether one adopts a pessimistic or optimistic view of artificial intelligence, policy will shape how it affects society. This column looks at both the policies that will influence the diffusion of AI and policies that will address its consequences. One of the most significant long-run policy issues relates to the potential for artificial intelligence to increase inequality.
The Unforeseen Consequences Of China’s Insatiable Oil Demand – Tim Daiss
While it’s true that China’s crude oil imports recovered slightly in July, it was still among the lowest so far this year due to a decline in demand from smaller so-called independent “teapot” refineries.
However, for the first seven months of the year, China imported some 8.98 million barrels per day (bpd) of crude oil, up 5.6 percent from a year earlier. Total natural gas imports, including both pipeline gas and liquefied natural gas (LNG), rose to 7.38 million tonnes during the same period, up 28.3 percent from a year ago, according to customs data.
Moreover, amid both economic growth as well as Beijing’s mandate that gas make up at least 10 percent of the country’s energy mix by 2020 to offset the effects of rampant air pollution from dirtier thermal coal power production, the long term trajectory for both China’s natural gas consumption, as well as oil usage, will continue to increase, posing both a geopolitical and financial dilemma for the country that the U.S. and many western powers grappled with for decades.
Italy’s Central Bank Admits Wealth Redistribution Leads to Corruption – Kai Weiss
The EU’s Common Agricultural Policy (CAP), the farm subsidies which currently account for 39 percent of the EU budget (and accounted for almost 70 percent in the past), has been subject to much criticism over the years — and rightfully so. It is surely one of the most abominable government policies in the world, propping up farmers who would have gone out of business long ago, sending immense amounts of money to large farm corporations and rich landowners (which still includes the Queen), and hurting African farmers by the obvious overproduction, making them uncompetititve.
How Fair Is That Fair Trade Label? – Valerie Vande Panne
If you consider yourself a conscious consumer, you might have stood before the chocolate section at your Whole Foods, reading label after label of “fair trade” logos, and wondered, what the heck do all these different certifications mean?
If you asked yourself that—you’re correct to wonder. There are dozens of “fair trade” logos slapped on products, and some are as empty as you might suspect.
But there are some certifications that do mean something, like no child labor was used in the creation of the product (ahem, fast fashion brands like Adidas and H&M).
***The Global Container Shipping Industry since the Hanjin Collapse – MC01
Overcapacity reigns as companies splurge on the largest ships, consolidation rages, no one wants to back off.
In August 2016, Hanjin Shipping Co., at the time the world’s seventh largest container carrier, sought bankruptcy protection. It was the largest bankruptcy in shipping industry history. On February 2, 2017, the Seoul Bankruptcy Court declared that Hanjin Shipping would be liquidated, as restructuring its debts would be “prohibitively expensive.” But just how big was this debt load?
Hanjin Shipping had originally admitted to the equivalent of $5 billion in debts. Once the bankruptcy court got to work, there were nearly weekly announcements that more debt had been found, tucked away in nooks and crannies of the once glistening edifice. In the end, it was determined that Hanjin, when it entered receivership, actually had $10.5 billion in debts.
Preserve Our Fisheries by Expanding Private Property Rights – Michael Malin
In the United States, fisheries are regulated via licenses, regulations, and quotas. The issues with a broad enforcement through regulations and quotas is twofold. They do not prevent overfishing in certain areas and they do not incentivize any actions that might improve conditions in the future. Owning sections of the ocean, however, would create a profit incentive to self-regulate fishing practices to ensure sustainable — or even growing — yields from year to year.
Advancing the evaluation of tax reforms: A new IMF database – Era Dabla-Norris, Ruud de Mooij
A key problem in tax research is that quantitative information is often only available for tax rates, not tax bases. This column introduces a new IMF database on tax reforms published, which uses text-mining techniques to infer multiple dimensions of tax reforms enacted in 23 advanced and emerging economies over the last four decades. The database, which covers both direct and indirect taxes, can help address well-known methodological pitfalls in existing tax research and offers opportunities for novel analysis of tax policy.
***Cyclical Heavy-Truck Industry Soars to Cloud 9 – Wolf Richter
“It’s a bizarre occurrence and it will not be resolved soon.”
Orders for Class 8 trucks in July jumped 187% from a year ago to 52,250 units, the highest number of monthly orders ever. These are the heavy trucks that haul a significant part of the goods-based economy across the US. For the first seven months this year, order volume of Class 8 trucks doubled from the same period a year ago:
FTR Transportation Intelligence, which provided the data, explained: “Fleets are desperate to get new trucks, but supply is limited. Because fleets are frustrated by the current situation and are uncertain when they can receive trucks, they are placing a large volume of orders in hopes of getting some deliveries at some point in the future.”
***Federal Deficits Are Worse than You Think – Mark Brandly
Voters tend to be rationally ignorant. Since a single vote does not matter, for most potential voters the cost of being politically well-informed is greater than the benefit of being knowledgeable about political affairs. Therefore it’s rational for most voters to be ignorant regarding political issues.
A main reason for the high cost of being well-informed is that government officials may not want the public to be well-informed. They purposefully conceal their schemes to reduce the opposition to their policies. A well-informed body politic would be a threat to the welfare and warfare state.
This obscurantism is on full display regarding the government budget.
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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