Economische aanraders 15-12-2019
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.
Why Central Banks Aren’t Really Setting Interest Rates – Frank Shostak
Mainstream thinking considers the central bank a key factor in the determination of interest rates. By setting short-term interest rates, the central bank, it is argued, can influence the entire interest rate structure by creating expectations about the future course of its interest rate policy.
In this way of thinking, the long-term rate is an average of current and expected short-term interest rates. If today’s one-year rate is 4 percent and the next year’s one-year rate is expected to be 5 percent, then the two-year rate today should be 4.5 percent ((4%+5%)/2=4.5%).
Conversely, if today’s one-year rate is 4 percent and the next year’s one-year rate expected to be 3 percent, then the two-year rate today should be 3.5 percent ((4%+3%)/2=3.5%).
Hundreds Of Billions In Gold And Cash Are Quietly Disappearing – Tyler Durden
Something strange is going on: at the same time that central banks are injecting $100 billion each month in electronic money to crush volatility and ramp markets, a similar amount in hard physical currency and precious metals is literally disappearing.
Take gold: as we reported last week, it was none other than Goldman Sachs which recently laid out the case for gold, saying “gold’s strategic case still strong.” One reason for this is that the same central banks that are “full tilt” printing cash, they have also been splurging on gold, and as a result of “geopolitical uncertainty” there has been a record surge in gold demand by central banks themselves. As Goldman notes, “CBs globally have been buying gold at a very strong pace” and “2019 looks to be a record year for CB gold purchases with our target of 750 tonnes combined purchases likely to be met.”
Fiscal stabilisation in monetary unions – Plamen Nikolov, Paolo Pasimeni
If properly designed, even a small fiscal capacity can maximise its stabilisation effect. The column studies the macroeconomic stabilisation provided by the federal budget in the US as an example for monetary unions. Corporate income tax, on the revenue side, and social security, on the spending side, are the two most effective items. The key is to collect revenues based on the income of the most mobile factor, and to provide support to the income of the least mobile factor.
Hyperinflation, Money Demand, and the Crack-up Boom – Thorsten Polleit
In the early 1920s, Ludwig von Mises became a witness to hyperinflation in Austria and Germany — monetary developments that caused irreparable and (in the German case) cataclysmic damage to civilization.
Mises’s policy advice was instrumental in helping to stop hyperinflation in Austria in 1922. In his Memoirs, however, he expressed the view that his instruction — halting the printing press — was heeded too late:
Austria’s currency did not collapse — as did Germany’s in 1923. The crack up boom did not occur. Nevertheless, the country had to bear the destructive consequences of continuing inflation for many years. Its banking, credit, and insurance systems had suffered wounds that could no longer heal, and no halt could be put to the consumption of capital.
China’s “Moment Of Reckoning” Arrives: $38BN State-Owned Giant Announces Largest Dollar Bond Default In Two Decades – Tyler Durden
Two weeks ago we previewed what we said would soon be a D-Day for China’s bond market, as a massive commodities trader and Global 500 state-owned enterprise was set for an “unprecedented” bond default.
As of last week, this historic default is now in the history books after Tewoo, the closely watched Chinese commodities trader, became the biggest dollar bond defaulter among the nation’s state-owned companies in two decades, in what Bloomberg called a “moment of reckoning” for Beijing as China struggles to contain credit risk in a weakening economy, as bond defaults hit an all time high and are set to keep rising in the coming years.
The effects of export credit guarantees on firm performance – Natasha Agarwal, Magnus Lodefalk, Majken Stenberg, Aili Tang, Sofia Tano, Zheng Wang
Export credit guarantees turned 100 this year, yet they have been sparsely studied. This column examines the causal effects of export credit guarantees on firm performance. It concludes by considering whether the provision of guarantees should be rebalanced in favour of small and medium-sized enterprises and by calling for governments to urgently integrate all major countries into a regulated system for export credit guarantees.
***The Taxonomy of Collapse – Charles Hugh Smith
The higher up the wealth-power pyramid the observer is, the more prone they are to a magical-thinking belief that the empire is forever, even as it is crumbling around them.
How great nations and empires arise, mature, decay and collapse has long been of interest for a self-evident reason: if we can discern a template or process, we can predict when the great nations and empires of today will slide into the dustbin of history.
One of the justly famous attempts to lay out the stages of expansion, zenith, decline and collapse is Sir John Glubb’s 1978 The Fate of Empires. Succinct and deeply informed, Glubb’s essay lists these stages:
The Age of Pioneers (outburst or Boost Phase)
The Age of Conquests
The Age of Commerce
The Age of Affluence
The Age of Intellect
The Age of Decadence
The art of assessing public debt sustainability: Relevance, simplicity, transparency – Xavier Debrun, Jonathan D. Ostry, Tim Willems, Charles Wyplosz
Knowing whether public debt is sustainable is as critical for economists analysing fiscal policy as for practitioners tasked with charting desirable policy paths. However, because sustainability is intimately related to the government’s ability to honour all its current and future obligations, it is purely forward-looking and assessing it amounts to making a prediction about an unknowable future. This column fleshes out three principles guiding the design and implementation of sound debt sustainability frameworks: relevance, simplicity and transparency.
Is 150 Years of Bank Credit Expansion Nearing Its End? – Alasdair Macleod
Since the turn of the millennium there have been two global bank credit crises: the first was the deflation of the dot-com bubble in 2001–2, and the second the 2008–9 financial crisis that wiped out Lehman Brothers. It was clear from these events that the debate over moral hazard was resolved in favour of supporting not just the banks, but big business and stock market valuations as well. Furthermore, America’s budget deficits were becoming a permanent fixture.
Promoting competition in platform ecosystems – Thorsten Kaeseberg
The agendas and roadmaps for the future of digital policy in Europe have been debated extensively. This column proposes a menu of different policy instruments for the new European Commission in order to achieve this transformation. These include reforming the framework of the e-commerce Directive, regulating super-dominant digital platforms, facilitating data intermediaries as counter-balancing actors, facilitating the rise of European platforms, and pushing blockchain.
This is How the Biggest Sector of the US Economy Is Doing – Wolf Richter
Financialization of everything, Insurance Rules, Tech & Software Red-Hot, Health Care Eats into Everything. We can just sue each other to boost GDP.
Services-producing industries – not including government services – dominate the US economy, amounting to the equivalent of 70% of overall GDP by value added, and to 80% of the private sector economy. As long as the services-producing industries grow enough, it’s tough for the US economy to fall into a recession. And in the third quarter, according to the Commerce Department’s Quarterly Selected Services Estimates, revenues by the services-producing industries rose 4.9% from a year ago, to a record $4.11 trillion (not seasonally adjusted). For the first three quarters of the year, revenues rose 5.2% to $12.1 trillion
***What a European ‘carbon border tax’ might look like – Michael Mehling, Harro van Asselt, Kasturi Das, Susanne Droege
The new European Commission is considering the introduction of a ‘carbon border tax’. This column argues that the current EU legal framework and earlier policy proposals for border carbon adjustments offer a good indication of what such a measure might look like. If certain substantive and procedural guidelines are observed, a ‘carbon border tax’ along these lines can work and pass legal muster, but some important questions remain. Without a concrete mandate in the EU emissions trading system allowance directive to elaborate a border carbon adjustment, new legislation or an amendment will be necessary.
***Socialism and the Green New Deal: Choose One – Richard M. Ebeling
The Spanish philosopher, George Santayana (1863–1952) is usually credited with the phrase, “Those who cannot remember the past are condemned to repeat it.” Nowhere is this truer than with the renewed idea and demand for the establishment of a socialist economic system.
A noticeable number of intellectuals inside and outside the ivy tower of academia, as well as a vocal segment of those on the “progressive” side of American politics are insisting on the desirability and necessity for ending the “neo-liberal” capitalist system and replacing it with a “democratic” socialism dedicated to “social justice,” “identity politics,” and relatively comprehensive centralized planning of economic and social affairs.
Idiosyncratic risks and the volatility of trade – Francis Kramarz, Julien Martin, Isabelle Mejean
Economists continue to disagree about whether international trade exacerbates or diminishes volatility. This column presents firm-level evidence from French exporters and their European trading partners over 15 years to show that firm-level volatility increases individual-level and aggregate-level volatility. High concentration among buyers as well as suppliers can amplify these shocks.
PayPal, Western Union Named & Shamed for Overcharging the Most on Money Transfers to Mexico – Nick Corbishley
Remittances to Mexico is a $36-billion-a-year business. Remittances from workers of Mexican descent based mostly in the US, but also in other countries, are a lifeline for Mexico’s economy, accounting for almost 3% of GDP. Millions of people depend on relatives working in the U.S. In some Mexican states, they can represent as much as 10% of total revenues. Most of that money gets spent very quickly in the Mexican economy, often on rents or building costs.
This year, Mexico is on target to receive about $36 billion in remittances, an increase of around 7% on the previous record high of $33.4 billion in 2018. To put that figure into perspective, it’s more than the $29.3 billion in revenues that state-owned oil company, Pemex, obtained from its exports of crude oil and other hydrocarbon products in 2018, and is also more than the $30.7 billion Mexico received in foreign direct investment.
Does the Fed Think It’s Going Japanese? – It Really Thinks So – Andrew Moran
Japan has not recovered fully from the lost decade of the 1990s. The Asian financial crisis was exacerbated by the dot-com crash and then a few years later the global economic collapse. Tokyo has tried everything to combat anemic growth and deflation, and resolve the zombification of the Japanese economy through an immense buildup of government debt and a dramatic loosening of monetary policy, including subzero interest rates. This has become known as Japanification. In recent years, Europe has seen its own Japanification, and now it looks like the United States could mirror it, too
Financial integration and external adjustment – Andreas Fischer, Henrike Leonie Groeger, Philip Sauré, Pınar Yeşin
Global imbalances are at the core of today’s trade tensions, but official current account statistics may not be sufficient to assess the external positions of financially integrated economies. For instance, balance of payments accounting standards do not prescribe the recording of retained earnings on portfolio equity investment in the current account. This column argues that adjustments in income flows in equity investment therefore remain concealed in official current account statistics. In today’s financially integrated world with existing accounting standards, external adjustment mechanisms should be considered more broadly than just as an evolution of trade balance and exchange rate movements.
Liquidity Matters – Retail Investors Are About To Learn A Valuable Lesson The Hard Way – Lance Roberts
One of the great challenges of financial markets is that certain important events only happen infrequently – which makes it all the easier to overlook them during intervening periods. One of those important situations is when it becomes extremely difficult, if not impossible, to sell an investment because too few people are both willing and able to buy it.
Through the course of a cycle the phenomenon of illiquidity occurs periodically but is normally contained to very specific situations and does not affect broader markets. Increasingly, however, there are signs that liquidity could be a problem in the foreseeable future, so it is a good time to review the risks.
***Violence, Homesteading, and the Origins of Private Property – David Gordon
Those who us who accept self-ownership and a Lockean account of property acquisition must face an important objection. In this account, self-owners occupy land and other natural resources, in that way acquiring exclusive rights to the land or resources. Once they done so, they may transfer their titles to the property they have acquired through exchange or gift, and they may bequeath it to their heirs. Once someone acquires property from someone who has initially acquired it, he may transfer it under the same conditions, and so on until we reach the present possessors of the property.
Public support for the euro and trust in the ECB: The first two decades – Felix Roth, Lars Jonung
On the 20th anniversary of the euro, this column traces public support for the single currency and public trust in the ECB. The crisis years slightly dented support for the euro while trust in the ECB fell sharply. The recovery increased support for the euro, but while trust in the ECB has also risen, it remains below its pre-crisis levels. Unemployment is the key factor driving public support for the euro as well as trust in the ECB.
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