Economische aanraders 16-16-2018
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.
IMF reform: The never-ending quest – José De Gregorio, Barry Eichengreen, Takatoshi Ito, Charles Wyplosz
Twenty years ago, ICMB and CEPR published the first Geneva Report on the World Economy. Over these last two decades, the world of international finance has changed and so too has the IMF. This column introduces the latest report, in which the same team of authors highlight seven key developments affecting the monetary and financial environment and their implications for the Fund.
These Four Predicted The Global Financial Crisis; Here’s What They Think Causes The Next One – Tyler Durden
A different kind of hurricane slammed into the American East coast, the nation and ultimately the world ten years ago today.
Amidst the multiple introspective columns and soul searching that naturally occurred this week, which looked back on the missed warning signs behind the 2008 financial collapse exactly a decade ago this weekend, there is a small group of people whose opinions are actually worth paying attention to.
Though arguably no single individual accurately called all aspects of the crisis in its entirety, precipitated by the implosion of Lehman Brothers, some did very publicly predict key facets with prophetic clarity. As Market Watch’s Howard Gold explains in his profile of four analysts the world should have been listening to: “People warned about subprime mortgage loans, derivatives, and too much leverage, but nobody, to my knowledge, said a bursting housing bubble would cause a global crisis that would lead to the demise of venerable financial firms, require trillion-dollar taxpayer bailouts, and cause a recession that rivaled only the Great Depression in its magnitude.”
Census Bureau Reveals Grim Facts about Real Earnings of Men – Wolf Richter
Women weren’t so lucky either. But who got the spoils?
On the surface, the annual household income data released by the Census Bureau today, looks mediocre. But beneath the surface, it looks grim – grim for whom? Ha, we’ll get to that.
So the mediocre news right up front:
Median household income in 2017, adjusted for inflation (via CPI), inched up a measly 1.8% to $61,372. “Household income” is the entire pre-tax “money income” of a household, including wages, interest, dividends, Social Security, Workers Comp, child support, and the like, but excluding capital gains. The mediocre news is that median household income has finally inched above where it had been 18 years ago, in 1999:
Seth Klarman: These Are The 20 Forgotten Lessons From The 2008 Crisis – Tyler Durden
On the 10 year anniversary of the Lehman bankruptcy, a cottage industry of crisis experts, historical apologists, and generally freelance reminiscers (sic) had emerged, opining on what happened, what should have happened, what changed in the interim ten years, and what will happen in the future.
Most of these opinions are worthless with many of them coming from those who were either responsible for the financial crisis or never saw it coming in the first place. So instead, we have chosen to go with the far more actionable and erudite take of investing legend Seth Klarman who many years ago, one the 1 year anniversary of Lehman’s failure, described the 20 lessons from the financial crisis which, he said “could and should have been learned from the turmoil of 2008” but instead “were either never learned or else were immediately forgotten by most market participants.”
Ten Years After Lehman: The Solution Was “More Lehmans” – Daniel Lacalle
The day Lehman went bankrupt I left the office in London for Waterloo Station and realized that something monumental had happened. The faces of the dozens of people waiting patiently for trains from the center to their homes were revealing. Most of them were, like me, City workers. Panic.
I remember when Freddie Mac and Fannie Mae — both government entities — were bailed out, because it happened shortly before the Lehman collapse. They were the largest originators of subprime mortgages.
Why were subprime mortgages originated by Freddie and Fannie given maximum rating and credit quality? Because they had the government stamp.
The EU’s fiscal rules urgently need a revision – Coen Teulings
The decade following the Lehman Brothers bankruptcy was a traumatic period for the euro area. Though the financial crisis originated in the US, the recovery there was quicker than in the euro area, and the output loss in the euro area appears to be about 15% compared to ‘only’ 10% for the US. This column argues that the imbalance between monetary and fiscal integration seems to have been an important factor behind the euro area being hit more severely than the US. A revision of the fiscal rules is needed.
What Truckers & Railroads Said About the Economy: Blistering Demand is Backing Off, Cyclicality Lives – Wolf Richter
But the cost of shipping surges, no holds barred.
The signs that the infamous cyclicality of the transportation industry is changing direction once again are still timid. This industry is a thermometer of the goods-based economy. And it has been hopping! But the first such signs are appearing, even as activity is at record highs, amid complaints of equipment and driver shortages, bottlenecks and delays in the supply chains, and a massive double-digit surge in pricing.
Freight shipment volume across all modes of transportation – truck, rail, air, and barge – rose 6.0% in August, compared to a year earlier, according to the Cass Freight Index. The index covers merchandise for the consumer and industrial economy but does not include shipments of bulk commodities, such as grains or chemicals.
The inflation expectations of Italian firms – Alfonso Rosolia
Given the role firms play in the transmission of monetary policy decisions, it is useful to understand how they form their inflation expectations. The column uses data from Italy to show that firms are attentive to the economic environment, even if they are not completely aware of the latest developments. They are also able to extract relevant information to update their expectations from ECB communications.
Dollarize Argentina – John H. Cochrane
Argentina should dollarize, says Mary Anastasia O’Grady in the Wall Street Journal — not a peg, not a currency board, not an IMF plan, just give up and use dollars.
Another currency crisis is roiling Argentina… The peso has lost half its value against the U.S. dollar since January. Inflation expectations are soaring.
The central bank has boosted its overnight lending rate to an annual 60% to try to stop capital flight. But Argentines are bracing for spiraling prices and recession.
…the troubles have been brewing for some time. On a trip to Buenos Aires in February, I got an earful from worried economists who said Mr. Macri was moving too slowly to reconcile fiscal accounts.
Dollarization is not a currency board, which Argentina also tried and failed. A currency board is a promise to keep the peso equal to the dollar, and to keep enough dollars around to back the pesos. Alas, it does not keep dollars around to back all the governments’ debts, so the government soon enough will see the kitty of dollars and grab them, abrogating the currency board. Dollarization means the economy uses dollars, period, and there is no pool of assets sitting there to be grabbed.
The Great Cryptocurrency Crash of 2018 – Joseph T. Salerno
It looks like we have an asset bust for the record books in the making. The cryptocurrency crash now under way today surpassed the dot-com bust that occurred at the beginning of the millennium,. While the NASDAQ Composite Index suffered a decline of 78% from its peak in March 2000 to its trough in October 2002, the MVIS CryptoCompare Digital Assets 10 Index, has tumbled 80% from January of this year to today. During this period, the price of bitcoin, which represents 55% of the value of all cryptocurrencies, has plunged from around $19,300 at its January peak to $6,300 as I write this. In the estimate of one commentator, the only “currency” in the world that is now faring worse than bitcoin is the Venezualan bolivar. Whether or not cryptocurrncies recover–and I doubt they will–it is clear that their volatility make them unfit to serve as a general medium of exchange. However this lesson will likely be lost on the promoters of cryptocurrency.
Turkey, Argentina, Other Emerging Markets Hit BBVA – Don Quijones
After the euro debt crisis, Spain’s alpha-lender sought greener pastures in the Emerging Markets. That bet is coming home to roost.
Few, if any, global banks have bet as large, or as recklessly, on fast-growth emerging markets as Spanish lender BBVA. In the first half of 2018 its subsidiaries in Turkey, Mexico, Argentina, and other Latin American economies provided roughly half of its revenues and over 60% of its global operating profits. Now, with the current emerging market downturn deepening and contagion spreading from one market to another, BBVA is beginning to pay the price for its elevated exposure.
The Fed’s Plan for “Countercyclical Capital Buffers” Is Just More of the Same – Christopher Westley
If you follow financial news related to Fed policy, you would have noticed a recent push for the use of “a new monetary tool,” called countercyclical capital buffers. Some prominent Fed officials and Fed watchers — the monetary version of all the king’s horses and all the king’s men — have decided the time is now to start raising such requirements, notwithstanding resistance to their implementation.
A countercyclical capital buffer, often abbreviated CCyB, is a capital requirement enforced on the US’s largest banks to promote bank stability when the inevitable recession hits.
How Things Fall Apart: Extremes Aren’t Stable – Charles Hugh Smith
A funny thing happens on the way to stabilizing things by doing more of what’s failed: the system becomes even more unstable, brittle and fragile.
A peculiar faith in pushing extremes to new heights has taken hold in official circles over the past decade: when past extremes push the system to the breaking point and everything starts unraveling, the trendy solution in official circles is to double-down, pushing even greater extremes. If this fails, then the solution is to double-down again. And so on.
So when uncreditworthy borrowers default on stupendous loans they were never qualified to receive, the solution is to extend even more stupendous sums of new credit so the borrower can roll over the old debt and make a few interest payments for appearance’s sake (also known as “saving face.”)
A funny thing happens on the way to stabilizing things by doing more of what’s failed: the system becomes even more unstable, brittle and fragile.
***4 Reasons Why Socialism Fails – Antony P. Mueller
The new “democratic socialists” want to make their followers believe that one could redistribute wealth and income and socialize a large part of the economy without harming production and productivity. They claim that a comprehensive control of the economy by the government would bring more justice and more prosperity. The democratic socialists want more planning and less market. Yet this postulate ignores that socialism does not fail by accident or circumstance. Socialism fails because it suffers from four fundamental design defects.
The Next Financial Crisis Is Right on Schedule (2019) – Charles Hugh Smith
Neither small business nor the bottom 90% of households can afford this “best economy ever.”
After 10 years of unprecedented goosing, some of the real economy is finally overheating: costs are heating up, unemployment is at historic lows, small business optimism is high, and so on–all classic indicators that the top of this cycle is in.
Financial assets have been goosed to record highs in the everything bubble. Buy the dip has worked in stocks, bonds and real estate–what’s not to like?
Beneath the surface, the frantic goosing has planted seeds of financial crisis which have sprouted and are about to blossom with devastating effect. There are two related systems-level concepts which illuminate the coming crisis: the S-Curve and non-linear effects.
The hierarchy of financial policies – Jon Danielsson, Robert Macrae
Financial policy is determined in multiple domains by separate government authorities. This column explores the hierarchical ranking of these domains and authorities. On top is the authority in charge of fiscal policy, followed by those running monetary, microprudential, and finally macroprudential policies. This ranking can cause conflicts in terms of policy effectiveness and legitimacy.
***Is Diamond Demand Crumbling? – Mining.com
Anglo American’s De Beers, the world’s No.1 diamond miner by value, has just had the lowest sales for its seventh cycle since it began releasing data in 2016, as it let customers delay acquiring smaller stones for the first time.
Sales for the cycle stood at a provisional $505 million, down 5.5 percent from the $533 million obtained in the previous cycle of the year and 0.4 percent from $507 million for same period in 2017.
“De Beers Group provided Sightholders with the opportunity to re-phase the allocation of some smaller, lower value rough diamonds.” chief executive officer, Bruce Cleaver, acknowledged in the statement.
Blame the Fed — Not Investors — For Asset Bubbles – Frank Shostak
In his speech on April 7 2010 at the Economic Club of New York the President of the New York Fed, William Dudley argued that asset bubbles pose a serious threat to real economic activity.
The New York Fed chief is of the view that the US central bank should develop effective tools to counter this menace.
According to Dudley, it should be the role of the Fed to stop the expansion of the bubble while it is still in the making.
Banks defy gravity – Vincent Bouvatier, Gunther Capelle-Blancard, Anne-Laure Delatte
Tax havens are estimated to concentrate 8% of global private financial wealth, reducing annual global tax revenues by about $200 billion. This column uses new country-by-country regulatory data on the foreign commercial presence of EU banks and compares it against gravity model predictions to examine the contribution of EU banks to tax evasion. It finds that bank activity in tax havens is three times larger than what is predicted by the gravity model, and that British and German banks are particularly present in tax havens.
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