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Economische aanraders 19-05-2019

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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Speculation and the price of virtual currency – Wilko Bolt, Maarten R C van Oordt
14 mei

What drives the volatility of Bitcoin? This column explains a theoretical framework to link exchange rates to currency creation, speculative behaviour, and real growth in goods and services transactions. It suggests that the exchange rate will be less sensitive to speculators’ beliefs when a virtual currency becomes more established as a means of payment.
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The Problem with Aggregate “Calculations” of the Value of Immigration – Gor Mkrtchian
14 mei

Economists on both sides of the immigration debate use statistics showing that immigrants have X net effect on tax contribution/consumption and Y net monetary effect on the private economy. A fatal problem when using these statistics to argue for or against immigration is that, beyond the monetary effects of immigration, the nonmonetary effects1 of immigration must also be taken into consideration to know whether natives will benefit or be harmed by immigration2 (in the ex-ante sense). However, state interventions into the economy restricting the sphere of private property render economic calculation in the realm of immigration impossible.
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The Economy Has Fundamentally Changed in the 21st Century–and Not for the Better – Charles Hugh Smith
15 mei

The net result is we have an economy that’s supposedly expanding smartly while our well-being and financial security are collapsing.
Gross Domestic Product (GDP) and other metrics of economic activity don’t measure either broad-based prosperity or well-being. Elites skimming financialization profits by expanding corporate debt and issuing more loans to commoners while spending more on their lifestyles boosts GDP quite nicely while the security and well-being of the bottom 90% plummets.
Under the hood of “recovery” and a higher GDP, life has gotten harder and more insecure for the bottom 90%. The key is not to look just at wages (trending up, we’re assured) or inflation (near-zero, we’re assured) but at aspects of daily life (lived experience) that cannot be captured by conventional economic / financial attempts at quantifying the economy.
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Central Banks’ Crusade Against Risk – Thorsten Polleit
15 mei

Since the latest the crisis in 2008/2009, central banks around the world have been doing their best to expel risks from financial markets. By lowering interest rates, fixing them at extremely low levels, or issuing more credit and money, monetary policymakers make sure that ailing borrowers are kept afloat. In fact, central banks have put a “safety net” under the economies and the financial markets in particular. As it seems, this measure has been working quite effectively over the last ten years or so.
Investors do no longer fear that big borrowers – be it big governments or big banks and big corporates – could default, as evidenced by the low credit spread environment. Liquidity in basically all important credit market segments is high, and borrowers experience no trouble rolling over their maturing debt. What is more, stock market valuations have continued to increase, significantly propped up by central banks’ easy monetary policy. For low interest rates help drive stock prices and their valuation levels up.
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E-Commerce Crushes Mall Retailers One by One. Here’s the Data – Wolf Richter
18 mei

Brick-and-mortar department stores – the lucky ones still open – are on schedule to be toast.
E-commerce sales in the first quarter soared 12.4% from a year ago to $127.3 billion (not seasonally adjusted), the Commerce Department reported on Friday. Last year, e-commerce sales blew through the $500-billion level for the first time ($513.6 billion). For 2019, e-commerce is on track to hit $575 billion, an increase of $61 billion. Over the past five years, e-commerce sales have doubled. On a seasonally adjusted basis, e-commerce sales in Q1 hit an all-time high of $137.7 billion.
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Promises to repay and sovereign spreads – Mitu Gulati, Ugo Panizza, Mark Weidemaier, Grace Willingham
18 mei

One way for a government to reassure investors of its willingness to repay is to give them a priority claim to state assets. It remains to be seen, however, whether such commitments are viewed as credible by market participants. This column investigates how markets responded to two such commitments. A commitment by the government of Spain did not affect yield spreads, while one by the government of Puerto Rico did. This may be because, as a sub sovereign, Puerto Rico faced higher constraints on its ability to renege.
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Is China’s Belt & Road a Decade Too Late? – Charles Hugh Smith
13 mei

The world appears to be tiring of globalization and hegemons, and that trend may doom the Belt & Road to irrelevancy.
The conventional narrative holds that China’s Belt & Road Initiative is cementing China’s global superpower status. There’s an alternative narrative, however: it’s a decade too late. From this perspective, global trade has reached the top of the S-Curve and is in the stagnation phase, which will be followed by decline or collapse.
Global trade growth loses momentum as trade tensions persist (WTO)
Why could global trade decline as a secular trend? The answer of the moment–trade wars– is more a symptom than the disease itself, which is the benefits of globalization have declined and the negative consequences are becoming unavoidable.
Trade is never “free;” there are always losers to any trade, and if the benefits accrue to the few at the expense of the many, the gains no longer offset the losses. Resistance to globalization is rising, and national interests are gaining political ground.
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***Vacation Giant & Airline Thomas Cook Verges on Collapse – Don Quijones
17 mei

Citi Group analysts slashed their price target to zero.
The shares of 178-year-old British global travel company Thomas Cook are in free fall, tumbling 10% on Thursday and another 40% today, after it issued a zinger of a profit warning for the second half of its fiscal year — the third profit warning in less than a year — and announced a £1.46 billion loss before taxes for its fiscal first half, ended March 31. It also unveiled a 12% slump in tour operator bookings, and a 37% rise in net debt.
The company’s shares are now worth just 11 pence a piece, down 92% from 130 pence a year ago. At that time, Thomas Cook Group was worth £2.5 billion. Today, its worth a couple of hundred million.
Citi Group analysts said first thing this morning that the company has “zero equity value” and slashed their target price for the shares from 28 pence to zero pence. The analysts also cited a warning from Thomas Cook’s auditor, EY, regarding “material uncertainties” over the group’s sale of its airline, a sale on which a new £300 million loan facility depends.
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How Central-Bank Interest-Rate Policy Is Destabilizing Banks – Justin Murray
18 mei

Broadly speaking, banks operate under the concept of maturity transformation. Banks take short-term – less than one year – financing vehicles, such as customer deposits, and use that to finance long-term – more than one year – returns. These returns range from the most commonly understood loans, such as auto loans and mortgages, to investments in equity, bonds and public debt. Banks make money on the interest spread between what they pay to the owners of the money and what is earned from the operations. Banks also make money on other services, such as wealth management and account fees, though these are relatively small compared to the maturity transformation business.
In terms of assets, the primary asset a bank holds is the demand deposit, also referred to as the core deposit. These are your everyday savings and checking accounts. Banks also sell Wholesale Deposits, such as CDs, have shareholder equity and also can take out debt, such as interbank lending. As these assets are owned by someone else, each of them demands a return for the use of those assets. These are part of the costs of operation for a bank. There are also more fixed operating costs, such as employees, buildings and equipment that must also be financed.
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***The lost ones: The opportunities and outcomes of white, non-college-educated Americans born in the 1960s – Margherita Borella, Mariacristina De Nardi, Fang Yang, Douglas Clement
17 mei

Behind the headline economic growth in the US over the last five decades lie clear patterns of widening wealth inequality. This column shows that white, less-educated Americans born in the 1960s are worse off than the generation born 20 years previously, based on wage changes, increased medical costs, and shorter life expectancy. This disparity could be worth as much as $132,000.
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Can the Fed Keep This Long Cycle Going? – Brendan Brown
16 mei

Our current super-long economic cycle is a monetary curse. Under sound money it would not exist, and under the pre-1914 gold standard, it never occurred. The present business cycle expansion in the US — the longest ever — comes in the wake of three recent super-cycle expansions: 1991-2000, 1982-90, and 1961-69. Arguably, the first super-long cycle was in the early years of the Federal Reserve, from 1921-9.
What is the “secret of long life” for these business cycle expansions? It is repeated stimulation by the Fed in response to any sign of economic slowdown and related danger. Any downward natural rhythm of prices (sometimes misleadingly described as “disinflationary forces”) boosts the scope for central-bank stimulation at any stage of the business cycle (whether to accelerate recovery from a trough or in combating potential weakness later).
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The Global Pivot Point – Craig Murray
16 mei

The massive economic shock following the banking collapse of 2007–8 is the direct cause of the crisis of confidence which is affecting almost all the institutions of western representative democracy. The banking collapse was not a natural event, like a tsunami. It was a direct result of man-made systems and artifices which permitted wealth to be generated and hoarded primarily through multiple financial transactions rather than by the actual production and sale of concrete goods, and which then disproportionately funnelled wealth to those engaged in the mechanics of the transactions.
It was a rotten system, bound to collapse. But unfortunately, it was a system in which the political elite were so financially bound that the consequences of collapse threatened their place in the social order. So collapse was prevented, by the use of the systems of government to effect the largest ever single event transfer of wealth from the poor to the rich in the course of human history. Politicians bailed out the bankers by using the bankers’ own systems, and even permitted the bankers to charge the public for administering their own bailout, and charge massive interest on the money they were giving to themselves. This method meant that the ordinary people did not immediately feel all the pain, but they certainly felt it over the following decade of austerity as the massive burden of public debt that had been loaded on the populace and simply handed to the bankers, crippled the public finances.
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UK Banks Double Down on High-Risk Mortgage Products to Prop Up Housing Market – Don Quijones
16 mei

Like the mortgage crisis never happened.
As the UK housing market is facing serious challenges, a high-risk relic of the last housing bubble is staging a big comeback: the interest-only mortgage. This financial product, often held up as the epitome of irresponsible lending, is hitting the market at a faster rate than at any time since the 2008 financial crisis.There are now 193 of these mortgage products available — almost double the 102 that existed six years ago.
With these mortgages, the borrower pays only the interest on the loan but makes no principal payments, and therefore doesn’t built up equity in the property. At the end of the loan’s term, the full balance becomes due all at once. Borrowers are supposed to have an investment plan in place, such as an endowment policy, to pay off the debt. But many of these policies have under-performed, meaning that borrowers now face a shortfall.
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Record-Setting Art Sales Confirm Global Liquidity Bubble – Jesse Colombo
17 mei

Art and collectibles prices have exploded in the past decade as a result of the extremely frothy conditions created by central banks. Hardly a week goes by without news headlines being made about ugly, tacky, or just plain bizarre works of art fetching tens of millions, if not hundreds of millions, of dollars at auction houses like Sotheby’s and Christie’s (often sold to rich buyers in China or Hong Kong). Make no mistake: we’re currently experiencing a massive art bubble of the likes not seen since the Japan-driven art bubble of the late-1980s that ended disastrously. Two art market records were made in the past week: the $91.1 million “Rabbit” sculpture by Jeff Koons, which set the record for the highest amount paid for a piece of art by a living artist, and the sale of Monet’s ‘Meules’ painting for $110.7 million, which set a record for an Impressionist work.
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Globalisation and state capitalism: Assessing the effects of Vietnam’s WTO entry – Leonardo Baccini, Giammario Impullitti, Edmund Malesky
17 mei

The recent success of China and Vietnam over the past three decades has triggered a debate over ‘state capitalism’ as a viable growth and development model. This column studies the effect of the 2007 WTO accession on the productivity, profitability, and survival rates of state-owned and private Vietnamese firms. The findings reveal that state-owned enterprises have hampered the efficiency gains brought about by globalisation. An analysis suggests that productivity gains from trade five years after WTO entry might have been 66% higher in the absence of state-owned firms.
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Almost sane housing supply – John H. Cochrane
14 mei

California, despite being a one-party state, is actively debating SB50 that would over-ride local zoning laws and allow construction of apartment buildings, especially near transit areas.
This is almost a remarkable outbreak of sanity. In a divided government, one can keep touting slogans. But when one party takes over, apparently permanently, they do have to actually govern, and eventually some reality must sink in.
Housing in California is ridiculously expensive. After California tried everything else — “affordable housing” mandates on developers, subsidies, rent controls, public housing, and so forth — it is finally facing the fact — we need to just let people build. Given that California will not allow more land to be devoted to housing — wisely, in my view — and given that the first generation housing stock was built cheaply, using a lot of land for little house, the natural place to allow people to build is up: replace small single family houses on large lots with apartments, townhouses, or even single family houses on smaller lots.
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***Trucking & Rail Shipments Sink as US Goods-Based Sector Slows – Wolf Richter
14 mei

Weakness in transportation deepens. Freight rates still rising, but also coming under pressure.
It has become a cacophony across earnings reports by trucking companies and railroads: Shipment volumes are declining, and revenues are propped up by higher freight rates, but now freight rates are coming under pressure too, as companies are getting more aggressive to pick up shipments. The latest two to report were YRC Worldwide, one of the largest truckers in the US, and BNSF Railway. Before them, it was J.B. Hunt and others.
This is summarized by the Cass Freight Index. Freight shipment volume in the US across all modes of transportation – by truck, rail, air, and barge – in April fell 3.2% compared to April last year, the fifth month in a row of year-over-year declines, and the first batch of declines since the transportation recession of 2015 and 2016.
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How to design a stimulus package – Pascal Michaillat, Emmanuel Saez
13 mei

Academics and policymakers alike have debated how to structure an optimal stimulus package since the Great Recession. This column revisits the arguments related to the size of the multiplier and the usefulness of public spending, and offers a blueprint for future stimulus packages. It finds that the relationship between the multiplier and stimulus spending is hump-shaped, and that a well-designed stimulus package should depend on the usefulness of public expenditure. The output multiplier is not a robust statistic to use, and instead the ‘unemployment multiplier’ should be used.
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Downward Mobility Matters More Than Liberal-Conservative Labels (Downward Mobility Creates “Deplorables”) – Charles Hugh Smith
16 mei

The real heresy here is the American economy is now rigged for downward mobility.
In the conventional narrative, one’s economic class is overshadowed by one’s political belief structure: liberal, conservative, libertarian, etc. In terms of economic class, the conventional narrative divides people into their ideological beliefs about economic ideologies: free market capitalism, socialism, etc.
Economic class is one of the few remaining heresies in America: in the conventional narrative, it doesn’t exist or is meaningless due to the tremendous social mobility of the American populace: the working class stiff is one wise decision way from middle class status, and the middle class worker is one wise investment away from becoming wealthy.
What the conventional narrative purposefully ignores is the potential for downward mobility, in which one bad decision or investment triggers a drop in economic class and future financial prospects. I’ve been writing for years about the diminishing number of slots in America’s upper middle class, and the realities of diminishing social mobility has been documented by research.
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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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