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Economische aanraders 19-08-2018

economische aanraders macro-economische vooruitzichten

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.

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Trade and currency weapons – Agnès Bénassy-Quéré, Matthieu Bussière, Pauline Wibaux
16 Augustus

Recent events on the international stage have reignited the debate on trade and currency wars. This column compares two forms of non-cooperative policies – import tariffs and currency devaluations – within a single framework. The results show that tariffs and devaluations do not have equivalent effects on trade flows. A 1% depreciation of the importer’s currency reduces imports by around 0.5% in current dollars, whereas an increase in import tariffs by 1 percentage point reduces imports by around 1.4%.
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Rise of US Dollar Haunts Emerging Market Debt – Wolf Richter
14 augustus

A vicious cycle, kicked off by cheap debt that’s suddenly not cheap, after 8 years of experimental monetary policies.
The dollar has risen nearly 2% since Thursday last week. Since April 17, when this move started, the dollar has surged over 8%, based on the WSJ Dollar Index, which tracks the dollar against the currencies of 16 key trading partners, including Mexico and China. From its low on February 16, the dollar has now risen 9.3% to the highest level since May 10, 2017:
The narrower Dollar Index (DXY), which tracks the dollar against six other currencies but not the Mexican peso and the renminbi, rose to 96.73, the highest since June 2017.
Not included in the two dollar indices are the Turkish lira and the Argentine peso, both of which have collapsed, with the lira down 43% and the peso down 33% against the dollar since April.
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Turkey Could Create A Larger Crisis Than Greece – Daniel Lacalle
13 augustus

The Turkish lira collapse should have surprised no one. Yet, in this bubble-justifying market, it did.
First and foremost, the lira decline has been ongoing for some time, and has nothing to do with the strength of the US dollar in 2018. The collapse of Turkey was an accident waiting to happen and is fully self-inflicted.
It is yet more evidence of the trainwreck that monetarists cause in economies. Those that say that “a country with monetary sovereignty can issue all the currency it wants without risk of default ” are wrong yet again. Like in Argentina, Brazil, Iran, Venezuela, monetary sovereignty means nothing without strong fundamentals to back the currency.
Turkey took all the actions that MMT lovers applaud. The Erdogan government seized control of the central bank, and decided to print and keep extremely low rates to “boost the economy” without any measure or control.
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Credit supply and housing speculation – Atif Mian, Amir Sufi
19 Augustus

Charles P. Kindleberger wrote that “asset price bubbles depend on the growth in credit”. This column looks at the acceleration of the US private label mortgage securitisation market in the US in the late summer of 2003, which disproportionately reduced the cost of financing by lenders that did not traditionally rely on deposit financing for mortgage lending. The sharp rise in lending in zip codes with greater exposure to such lenders generated a boom and bust in house prices. Easier credit also appears to have been a crucial ingredient in explaining bubble cities that experienced both house price and construction booms.
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***Why Are ATMs Disappearing at an Alarming Rate after a Wave of Branch Closures? – Don Quijones
15 augustus

Banks are curtailing “cash services.” But why?
In Australia, banks are reducing ATMs by about 8% a year. In the UK, ATMs — or cashpoint machines, as they’re termed locally — are disappearing at a rate of around 300 per month, leaving consumers in rural areas struggling to access cash, according to a new report by the consumers’ association, Which? The rate of closures has increased sixfold in the period from November 2017 to April this year from a steady pace of 50 per month since 2015.
Banks in Spain have closed around 40% of their branches over the past ten years, on the back of unprecedented industry consolidation and cost cutting. In Barcelona, there are now less than half the number of branches there were in 2008. But it’s in small towns and villages where the impact is being felt most keenly. According to new research, by 2016 as many as 4,114 municipalities — the equivalent of 50.7% of all urban settlements — had no bank branches at all.
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***Dummies’ Guide To How “External Dollar Debt” Produces An “Emerging Market Crisis” – John Rubino
18 augustus

Emerging market currencies are collapsing pretty much everywhere these days. But it’s safe to assume that most people don’t understand exactly what’s causing this outbreak, why it’s happening now, or what “external dollar debt” has to do with it.
So here’s a quick primer followed by the obligatory apocalyptic prediction:
Prelude: cheap dollar financing
Pretend for a second that you’re Brazil. Your economy is in pretty good shape and your currency – the real – is getting stronger. Because of this, people are willing to lend you money.
Your internal interest rates – that is, what you’d have to pay to borrow real – are around 6%.
But when you look overseas you notice that US dollars – which have been trending down for a while – can be borrowed for around 2%. So you run some numbers and conclude that if you borrow dollars and assume that the real continues to rise against the dollar, you’ll make out two ways, on the spread between what you pay for those dollars and what you earn by investing them, and when you pay back the loans with depreciated dollars. So you borrow dollars, not just a little but a lot because with a lot you make a fortune.
So far so good. For a while the dollar keeps falling versus the real and you earn a nice spread. You feel smart, like you’ve figured out international finance and henceforth will will have a seat at the big table.
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Nominal price stickiness and real exchange rate fluctuations – Andres Blanco, Javier Cravino
17 Augustus

Economists have often interpreted the observation that movements in real exchange rates are large, persistent, and closely track movements in nominal rates while cross-country differences in inflation rates are small and stable as direct evidence for nominal price rigidities. This column uses the microdata behind the construction of the consumer price index to isolate the real exchange rate for the subset of goods that change prices. This ‘reset exchange rate’ moves with the real exchange rate, suggesting that sticky prices are not a primary factor in dampening the response of inflation to exchange rate shocks.
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Around the World, We See the The Link Between Economic Liberty and National Prosperity – Daniel J. Mitchell
17 augustus

With the possible exception of a few extreme environmentalists, everyone agrees that robust long-run growth is a key to a better society.
An unprecedented jump in growth, for instance, is what enabled the western world to escape poverty, resulting in the famous “hockey stick” of modern prosperity.
modern-prosperity.jpg
Maintaining growth is an ongoing challenge for developed countries, to be sure, and it’s also vitally important to help developing nations grow and prosper.
Which is why policymakers should focus on the policies that generate good outcomes.
Libek, a think tank in Serbia, has released a study on this topic. They start by pointing out that we now have some good measures of economic liberty in various nations.
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Emerging Markets Have Gone Nowhere Over The Past Decade – Nicolas Colas
18 augustus

There used to be a fatalistic Wall Street witticism about emerging markets that went like this: “Brazil/Russia/Argentina/whatever is the economy of the future, and it always will be”. You heard it most often during the marketing of a big privatization IPO, albeit in whispered tones. The saying invariably proved true, but a few months later there would be the same joke with a different country’s name appended to the start. And a new privatization to market. Lather, rinse, repeat.
If you take a moment to pull up a long-term chart of the MSCI Emerging Markets Index (use EEM if you like, the longest lived ETF in the space), you’ll see a pattern that broadly comports with that aphorism. Specifically:
The all time high for EM equities on a monthly basis was over a decade ago, in October 2007.
The S&P 500, tied to a slower US economy than EM, is up 83% on a price basis since its prior-cycle highs in the same month of 2007.
EM equities are actually 25% lower than their October 2008 highs, or a 108 percentage point underperformance versus US equities. Put another way, you would have doubled your money long the S&P 500 and short EM since the prior top, and been nicely hedged during the Financial Crisis to boot.
EM equities have essentially done nothing the entire decade of the 2010s, unchanged from their August 2010 levels at today’s close.
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What Truckers & Railroads Just Said about the US Economy – Wolf Richter
16 augustus

It’s cyclical.
The transportation sector is a reflection of the goods-based economy in the US. Demand has been blistering across all modes of transportation. Freight shipment volume (not pricing… we’ll get to pricing in a moment) by truck, rail, air, and barge, according to the Cass Freight Index jumped 10.6% in July compared to a year earlier. This pushed the index, which is not seasonally adjusted, to its highest level for July since 2007.
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We’re All Lab Rats In The Largest-Ever Monetary Experiment In Human History – Chris Martenson
17 augustus

And how do things usually work out for the rat?
There are ample warning signs that another serious financial crisis is on the way.
These warning signs are being soundly ignored by the majority, though. Perhaps understandably so.
After 10 years of near-constant central bank interventions to prop up markets and make stocks, bonds and real estate rise in price — while also simultaneously hammering commodities to mask the inflationary impact of their money printing from the masses — it’s difficult to imagine that “they” will allow markets to ever fall again.
This is known as the “central bank put”: whenever the markets begin to teeter, the central banks will step in to prop/nudge/cajole the markets back towards the “correct” direction, which is always: Up!
It’s easy in retrospect to see how the central banks have become caught in this trap of their own making, where they’re now responsible for supporting all the markets all the time.
The 2008 crisis really spooked them. Hence their massive money printing spree to “rescue” the system.
But instead of admitting that Great Financial Crisis was the logical result of flawed policies implemented after the 2000 Dot-Com crash (which, in turn, was the result of flawed policies pursued in the 1990’s), the central banks decided after 2008 to double down on their bets — implementing even worse policies.
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How to Manipulate People with Interest Rates – Frank Shostak
17 augustus

Most experts agree that through the manipulation of short-term interest rates, the central bank by means of expectations regarding future interest rate policy, can also dictate the direction of long-term interest rates. In this way of thinking expectations regarding future short-term interest rates are instrumental in setting the long-term rates. (Note the long-term rates are an average of short-term rates in this way of thinking.)
Given the supposedly almost absolute control over interest rates, the central bank by correct manipulations of short-term interest rates could navigate the economy along the growth path of economic prosperity, so it is held. (In fact, this is the mandate given to central banks.)
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Trade uncertainty and investment – John H. Cocrane
13 augustus

My colleague Steve Davis has a nice post quantifying economic uncertainty due to the trade war, and its emerging impact on investment.
Steve (and Nick Bloom) have done a great job quantifying policy uncertainty over time. To be clear, policies can have two effects — there is the certainty of damaging policy, but there is also the damaging uncertainty of what policy will be. If a trade war seems to be looming, and you don’t know if you will get tariff protection (raw steel) or be hurt by the tariff (steel users, competing with tariff-free steel products from abroad), that’s uncertainty. Businesses hold off investing when they know things will be bad. But they also hold off when they’re not sure what will happen. That’s uncertainty.
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Inflation targeting and large shocks – Marcel Fratzscher, Christoph Grosse Steffen, Malte Rieth
17 Augustus

Does inflation targeting help absorb large shocks? This column shows that it implies higher output growth and lower inflation when countries are hit by natural disasters. Hard targeting works in these cases; soft targeting does not. This has impacts for how we evaluate the success of inflation targeting during the global crisis, but also for the debate on flexible inflation targeting.
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Our “Prosperity” Is Now Dependent on Predatory Globalization – Charles Hugh Smith
15 augustus

Nowadays, trade and “prosperity” are dependent on currencies that are created out of thin air via borrowing or printing.
So here’s the story explaining why “free” trade and globalization create so much wonderful prosperity for all of us: I find a nation with cheap labor and no environmental laws anxious to give me cheap land and tax credits, so I move my factory from my high-cost, highly regulated nation to the low-cost nation, and keep all the profits I reap from the move for myself. Yea for free trade, I’m now far wealthier than I was before.
That’s the story. Feel better about “free” trade and globalization now? Oh wait a minute, there’s something missing–the part about “prosperity for all of us.” Here’s labor’s share of U.S. GDP, which includes imports and exports, i.e. trade:
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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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