Economische aanraders 15-04-2018
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.
How Much Are Banks Exposed to Subprime? More than we Think – Wolf Richter
Wells Fargo has $81 billion in exposure to loans that, on paper, it isn’t exposed to.
A couple of days ago, when I wrote about the soaring delinquency rates in subprime auto loans – the worst since 1996 – and the collapse of three specialized small subprime lenders, I stumbled over a special nugget.
One of the collapsed small lenders, Summit Financial Corp, when it filed for bankruptcy on March 23, disclosed that it owed Bank of America $77 million. This loan was secured by the auto loans Summit had extended to subprime customers, who’re now defaulting in large numbers. In the bankruptcy documents, BofA alleged that Summit had repossessed many of these cars without writing down the bad loans, thus under-reporting the losses and misrepresenting the value of the collateral (the loans). This allowed Summit to borrow more from BofA to fund more subprime loans, BofA said.
Why Trade Wars Will Unleash Central Banks – Nomi Prins
There’s been an abundance of coverage surrounding the recent steel and aluminum tariffs. Those measures could hurt more sectors than they help within the U.S. In particular, it could damage businesses that require metals because they’ll have to pay more for raw materials.
Trade wars also escalate geopolitical tensions and economic hardships the world over. They have in the past. When the U.S. imposed tariffs in the 1930’s to try to relieve the Great Depression at home, they achieved the opposite effect.
A global trade war flared, governments became isolated and initiated defensive build-ups. The move ultimately resulted in lower production, reduced global trade and a prolonged international depression that gave rise to WWII.
Intellectual property – John H Cochrane
The China trade argument has boiled down to intellectual property and trade. Roughly it has gone like this:
“We need to stop China from selling us all this stuff. Bring the jobs home!”
“Uh, right now the jobs problem is that employers can’t find workers. Cheap stuff from China is a boon to American consumers. Tariffs like that on steel cost more steel-using jobs than they save.”
“Hm. Ok, but we have to threaten with tariffs to get China to stop requiring our companies to share intellectual property!”
I’m still skeptical about the intellectual property and trade argument. OK, suppose China says that in order for a US company to produce there, it must share intellectual property with a Chinese partner. Just how terrible is this? Just how terrible for the US economy, and society as a whole, justifying a robust policy response — obviously the company would rather make more profits, but that’s not a basis for economic policy.
Joint ventures and technology transfer: New evidence from China – Kun Jiang, Wolfgang Keller, Larry D. Qiu, William Ridley
China’s government mandates that foreign investors in certain industries form joint ventures with a domestic Chinese partner. The column uses a dataset accounting for all joint ventures in China from 1998 to 2007 to show that this policy is successful in its aim of encouraging technology transfer from foreign investors to domestic operations. It finds empirical evidence for the existence of at least three channels through which this transfer takes place.
The Genie’s Out of the Bottle: Eight Defining Trends Are Reversing – Charles Hugh Smith
Though the Powers That Be will attempt to placate or suppress the Revolt of the Powerless, the genies of political disunity and social disorder cannot be put back in the bottle.
The saying “the worm has turned” refers to the moment when the downtrodden have finally had enough, and turn on their powerful oppressors. The worms have finally turned against the privileged elites — who have benefited so greatly from globalization, corruption, central bank stimulus and the profiteering of state-enforced cartels. It doesn’t matter as much as the punditry assumes whether they are turning Left or Right; the important thing is that the powerless have finally started challenging their privileged overlords.
Though the Powers That Be will attempt to placate or suppress the Revolt of the Powerless, the genies of political disunity and social disorder cannot be put back in the bottle. It took a generation of rising inequality, corruption and the erosion of opportunity to create a society of the protected (the haves) and the unprotected (the have-nots), and rubber-stamping more regulations and distributing Universal Basic Income (UBI) will not rebalance a system that is irrevocably out of balance.
Why We May Be Headed For Another ‘Minsky Moment’ – Jesse Felder
I recently ran across a terrific chart in Grant’s Interest Rate Observer that got me thinking about Hyman Minsky and The Financial Instability Hypothesis. After remaining relatively unknown during the course of his lifetime, Minsky really came to fame in the immediate aftermath of the financial crisis as his hypothesis helped to explain what left most economists baffled: the fundamental cause of the crisis. Clearly, though, he has been forgotten just as quickly because, considering where we stand today, it’s obvious the economists with the greatest power to prevent another crisis have still not adopted his insights into their frameworks.
To begin to understand the current situation in Minsky terms we must first understand the hypothesis:
The first theorem of the financial instability hypothesis is that the economy has financing regimes under which it is stable, and financing regimes in which it is unstable. The second theorem of the financial instability hypothesis is that over periods of prolonged prosperity, the economy transits from financial relations that make for a stable system to financial relations that make for an unstable system. In particular, over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance.
After a String of Corporate Scandals & Collapses, “Big Four” Accounting Giants Face Breakup in the UK – Don Quijones
UK regulators may be on the verge of doing something right, but doubts remain over how genuine their stated intentions are.
Following a string of corporate scandals and collapses, the UK’s top accounting regulator, the Financial Reporting Council (FRC), has called for an inquiry to explore the possibility of breaking the audit arms of the Big Four accounting firms — KPMG, Deloitte, Ernst & Young, and Price WaterhouseCoopers — into separate pieces. The Competition and Markets Authority (CMA) should look into the possibility of “audit only” firms in a bid to enhance competition in the sector, said FRC chief executive Stephen Haddrill.
The Deflation/Inflation Debate – Alasdair Macleod
“Naïve inflationism demands an increase in the quantity of money without suspecting that this will diminish the purchasing power of the money.” ― Ludwig von mises, The Theory of Money and Credit
It is hardly surprising that with equity indices stalling, the financial community is increasingly worried that the long, steady bull market is coming to an end. Naturally, this makes investors look for reasons to worry, and it turns out that there are indeed many things to worry about.
In fact, there are always things to worry about. Ever since the Lehman crisis, the Four Horsemen of the Apocalypse have been casting long shadows across the financial stage. But as financial assets have continued to rise in value over the last nine years, bearish fund managers, spooked by systemic risks of one sort or another and the perennial threat of a renewed slump, have been forced to discard their ursine views.
Blind spots and unintended consequences of the 14 economists’ Policy Insight – Sebastian Dullien
The recently published CEPR Policy Insight by a team of French and German economists proposes a package of reforms to make progress on risk sharing and risk reduction in the euro area. This column, which forms part of VoxEU’s Euro Area Reform debate, argues that while many of the package’s elements make sense, it leaves too many questions open and fails to address a number of central problems of EMU architecture.
What Makes AI Dangerous? The State – Per Bylund
So I watched “Do you trust this computer?”, a film that “explores the promises and perils” of artificial intelligence. While it notes both the good and the bad, it has an obvious focus on how AI might bring about “the end of the world as we know it” (TEOTWAWKI.) That is, if it is left unregulated.
It’s strange, however, that the examples of TEOTWAWKI AI were “autonomous weapons” and “fake news,” the latter because of how it can provide a path for a minority-supported dictator to “take over.” While I understand (and fear) both, the examples have one thing in common – but it is not AI.
As Malls Get Crushed, Commercial Real Estate Prices Fall to Lowest in Nearly Two Years– Wolf Richter
Leverage is why the Fed has been worried about the bubble in CRE.
Commercial real estate loans at banks in the US reached a record of $4.3 trillion. This amount is now 11% higher than it had been during the crazy peak of the prior commercial real estate bubble before it imploded during the Financial Crisis. In CRE, leverage is everything. Banks, particularly smaller regional banks that specialize in it, are on the hook.
Fed governors have pointed at CRE as one of the places where “elevated” prices threaten “financial stability” because of leverage and the connection to banks. CRE loans were in part responsible for the near-collapse of the financial system during the Financial Crisis, after CRE prices – the value of the collateral for those loans – turned down.
Warren Buffett and The New York Times Are Still Wrong About Taxes – Daniel J. Mitchell
Politicians routinely assert that they want more economic growth. That’s a laudable sentiment, although I doubt their sincerity for the simple reason that these are the same people who frequently impose policies that discourage productive economic activity.
Growth occurs when there’s an increase in the quantity and/or quality of labor and capital. These so-called factors of production determine how efficiently we produce and how much we produce.
Which is why there should be low taxes on labor and capital.
How information frictions affect trade and price patterns – Claudia Steinwender
Flows of information, though critical for the efficient functioning of markets, are often limited in reality, potentially distorting trade flows and price patterns. This column uses the transatlantic telegraph connection of 1866 to explore how changes in information frictions affected cotton markets in the US and UK. The results show that information frictions decrease average trade flows and the volatility of trade, leading to substantial welfare losses.
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