Economische aanraders 20-09-2020
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.
The US Dollar Collapse Is Greatly Exaggerated – Daniel Lacalle
The US Dollar Index has lost 10 percent from its March highs and many press comments have started to speculate about the likely collapse of the US dollar as world reserve currency due to this weakness.
These wild speculations need to be debunked.
The US dollar year-to-date (August 2020) has strengthened relative to 96 out of 146 currencies in the Bloomberg universe. In fact, the US Fed Trade-Weighted Broad Dollar Index has strengthened by 2.3 percent in the same period, according to data compiled by Bloomberg.
The speculation about countries abandoning the US dollar as the reserve currency is easily denied. The Bank of International Settlements reports in its June 2020 report that global dollar-denominated debt is at a decade high. In fact, dollar-denominated debt issuances year-to-date from emerging markets have reached a new record.
Issues arising from the new ‘Powell doctrine’ – Ignazio Angeloni
The long-awaited outcome of the Federal Reserve’s monetary strategy review is finally out. This column argues that while the ‘Powell doctrine’ responds to a genuine need to address issues in the Fed’s policy framework, it also introduces complexities in the interpretation and implementation of monetary policy which are likely to become more apparent over time. The hurdles involved do not have easy solutions, and other central banks pondering their own monetary policy framework are well advised to take heed.
What the Trade Balance Means for a Currency’s Purchasing Power – Frank Shostak
In July this year the US trade balance stood at a deficit of $63.6 billion against a deficit of $51 billion in July last year. Some commentators regard a widening in the trade deficit as an ominous sign for the exchange rate of the US dollar against major currencies in the times ahead.
For most economic commentators a key factor in determining the currency rate of exchange is the trade account balance. In this way of thinking, a trade deficit weakens the price of the domestic money in terms of foreign money while the trade surplus works toward the strengthening of the price.
The international dimension of a fragile EMU – Demosthenes Ioannou, Maria Sole Pagliari, Livio Stracca
The debate over the incomplete and fragile nature of Europe’s Economic and Monetary Union has been revived by the Covid-19 pandemic. This column shows that adverse shocks within EMU can be identified and are transmitted to the rest of the world, with implications for economic activity and trade in advanced and emerging economies. Despite the important steps taken during the pandemic by euro area authorities, the drive to complete EMU with a genuine fiscal and financial union needs to continue for the sake of both the euro area and the rest of the world.
Turning to Keynes in this Crisis Will Only Make Things Worse – Frank Shostak
In the New York Times on September 8, 2020, Paul Krugman wrote that
The CARES Act, enacted in March, gave the unemployed an extra $600 a week in benefits. This supplement played a crucial role in limiting extreme hardship; poverty may even have gone down.
For Krugman and many economic commentators, it is the duty of the government to support the economy whenever it falls into an economic slump. Following in the footsteps of John Maynard Keynes, most economists hold that one cannot have complete trust in a market economy, which is seen as inherently unstable. If left free the market economy could lead to self-destruction. Hence, there is the need for governments and central banks to manage the economy. Successful management in the Keynesian framework is done by influencing overall spending.
Who Bought the $3.3 Trillion Piled on the Incredibly Spiking US National Debt Since March? – Wolf Richter
Trillions flying by so fast, it’s hard to even count them. But somebody had to buy these Treasury securities. And it wasn’t just the Fed. Here’s who.
In the 12 months through February, before the Pandemic started – those were the Good Times when a government shouldn’t have to borrow heavily – the US government added a breath-taking $1.4 trillion to its already huge pile of debt. And then came the Pandemic and the bailouts and the stimulus payments and all the other stuff, and over the six months since then, the US government added another $3.3 trillion to the Incredibly Spiking US Gross National Debt that now amounts to $26.8 trillion
“It’s Time To Lighten Exposure”: Here Are The Next Four Risks For Markets – Tyler Durden
September’s big event for markets – the FOMC meeting – has come and gone and clearly there was some disappointment in markets from a statement that many viewed as not dovish enough.
In fact, as Morgan Stanley’s Andrew Sheets writes, “conventional wisdom is that the meeting was ‘hawkish’, but we feel that this interpretation is just a little slanted by the immediate market reaction” which of course is true, and shows the degree to which the market is now reliant on the Fed’s monetary generosity. After all, this was a meeting where the world’s most important central bank suggested that it would keep rates at ~0% even if unemployment moved back down to 3.5-4.5% and where, in the Q&A, the Fed Chair downplayed the impact of central bank policy on asset prices.
The Problem with “Predictive” Theories of Economics – David Gordon
17 september (recensie)
[John Kay and Mervyn King
Radical Uncertainty: Decision-Making beyond the Numbers
Norton, 2020. xvi + 528 pages]
Kay and King are not Austrians, but in this important book, they lend aid and comfort to several key points of Austrian economics. Kay teaches economics at Oxford, and King, who was formerly governor of the Bank of England, teaches at NYU. (King in an earlier book, The End of Alchemy, that I had occasion to review warns against the dangers of fractional reserve banking in a way that will delight admirers of Murray Rothbard.)
Austrians hold that the dynamics of the market depend on profit-seeking entrepreneurs, whose judgments of appraisement are of necessity subjective, irreducible to monetary calculation
David Stockman: How The Stock Market Got To Be So Out Of Touch With Reality – Doug Casey
International Man: Thanks to the shutdowns, economic activity on main street is at a standstill. Government, corporate, and personal debt is skyrocketing. Yet, the stock market is in a mania. Has the stock market become out of touch with reality, and if so, what are the consequences of that?
David Stockman: Both ends of the Acela Corridor have lost their marbles. This year, Uncle Sam borrowed $4 trillion in six months, the Fed printed $3 trillion in three months, and Wall Street drove the S&P 500 to 52X reported LTM earnings in the context of a deeper economic plunge than occurred in the worst quarter of the 1930s.
This Is Why Inflation Will Rip Everyone’s Face Off – Charles Hugh Smith
This is why inflation will rip everyone’s faces off: production will continue to stagnate no matter how many trillions the Federal Reserve prints and throws around.
This is how market capitalism is supposed to work: consumers decide (for whatever reason) to buy more toilet paper. This increase in demand strips the shelves of TP and pushes the price up as demand exceeds supply.
In response, capital flows to enterprises that ramp up production of TP to meet this new demand / scarcity of supply. Price returns to equilibrium.
Inflation as a Tool of the Radical Left – Thorsten Polleit
“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch its currency….Lenin was certainly right. There is no subtler, no surer way of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
Keynes does not provide a concrete source backing his words but deliberately used the phrase “is said to have declared.” For a good reason. As Frank W. Fetter (1899–1991) pointed out, there is no evidence at hand that Lenin actually said or wrote these words, and anyone quoting Lenin on inflation would be indeed be referring to Keynes’s opinion.
Extracting implicit country weights in the ECB’s monetary policy – Márcia Pereira, José Tavares
Crises such as the sovereign debt crisis and the current Covid-19 crisis place significant pressure on European institutions, raising scepticism over policy decisions and speculation as to how member states’ differing needs are taken into account. This column uses estimated counter-factual country-specific interest rates to extract the country weights implicit in the ECB’s conventional monetary policy. Germany, Belgium and the Netherlands are associated with the largest weights, and Greece and Ireland with the smallest. Nonetheless, the weights of the larger economies are smaller than their output and population shares. The results change minimally when the crisis period is compared with the period before. In sum, while weights differ across countries, they do not seem to unduly weigh larger economies. Further, estimated country weights are positively correlated with the degree of co-movement between each country’s and Germany’s business cycles.
What’s to Be Done Now with All These Zombie Companies? – Nick Corbishley
Saving the Zombies in Europe.
Europe’s zombie firms are multiplying like never before. In Germany, one of the few European economies that has weathered the virus crisis reasonably well, an estimated 550,000 firms — roughly one-sixth of the total — could already be classified as “zombies”, according to research by the credit agency Creditreform. It’s a similar story in Switzerland.
Zombie firms are over-leveraged, high-risk companies with a business model that is not remotely self-sustaining, since they need to constantly raise fresh money from new creditors to pay off existing creditors. According to the Bank for International Settlements’ definition, they are unable to cover debt servicing costs with their EBIT (earnings before interest and taxes) over an extended period.
The Saving Problem in America: Alternatives and Reforms – Mark Thornton
Since before covid-19 and the lockdown, I have written articles that touch on the purpose and importance of personal savings, and more importantly, why the lack of personal savings was going to make an economic crisis in the year 2020 potentially tragic for most Americans.
As a result, I have been interviewed a couple of times specifically on the topic of personal savings. These interactions have indicated to me that people do not understand the importance of savings and rather believe the demonization of savings as a “leakage” from the economic system and that hoarding money is one of the greatest threats to the economy.
Slowdown in productivity growth compounded by COVID-19 – Alistair Dieppe
Since the 2008 global financial crisis, improvements in many key correlates of productivity growth have slowed or gone into reverse, and labour reallocation to more productive sectors from less productive ones has also weakened. Furthermore, the pace of convergence of emerging market and developing economies to advanced-economy productivity levels has slowed. This column argues that the COVID-19 pandemic is likely to compound the slowdown, with profound implications for development outcomes. A comprehensive broad-based approach is necessary to rekindle productivity.
Comparing Latin America’s Economic Models: Left vs. Right – Daniel Fernández Méndez
It is very difficult to conduct social science experiments, particularly in economics. Beyond some developments in experimental economics that involve lab tests, conducting economic experiments is practically impossible, especially for macro issues. However, fortunately, historical developments provide us with some natural experiments from time to time.
Perhaps the most surprising recent example of a natural experiment is the economic development of Hong Kong, Taiwan, and Macao, as compared to continental China’s economic development since 1949.1 This historical example allows us to contrast, within one culture and for economies with the same or similar initial conditions, the effects of a policy of total economic control with the effects of economic liberalization. As the reader already knows, the economic effects of communism were devastating in continental China, whereas the effects of economic liberalization in Hong Kong, Taiwan, and Macao were positive.
***Isn’t It Obvious We Need a New System? – Chalres Hugh Smith
Why do we tolerate such a corrupt, undemocratic, exploitive, elite-dominated system? Because we have no other choice? No, we do have a choice.
Isn’t it obvious that we need an alternative economic system that isn’t controlled by corporations, the government and the central bank for the exclusive benefit of insiders and elites? Isn’t it obvious that the current system has failed the majority of participants, and hence the ubiquitous sensations of:
1) being ignored by the insiders / elites who run the current system to their own benefit
2) being trapped in an economy that’s been stripped of social / upward mobility
3) being stripmined / exploited by domestic and globalized elites
4) disgust / frustration with the self-enriching political class that serves corporate/elite/insider interests above all else.
My 50 years of work have given me a ringside seat in how the economy has changed from inclusive to extractive. My jobs have ranged from agricultural field worker to running my own yard service to hospitality to construction to print media (free-lancer) to financial services (quant shop) to non-profit education to political rabble-rousing (unpaid) and my current profession as marginalized, misfit author-blogger (my specialty appears to be getting shadow-banned by Big Tech monopolist extractors).
***The role of prostitution markets in the surge of domestic violence during Covid-19 – Giovanni Immordino, Maria Berlin, Francesco Flaviano Russo, Giancarlo Spagnolo
Domestic violence appears to have surged during the Covid-19 crisis in almost all countries. This column argues that dwindling prostitution markets during the lockdown might be partly responsible for the surge. Analysing the effects of the one-sided criminalisation of prostitution introduced in Sweden in 1999, it finds that the law reduced street prostitution but increased domestic violence against women outside the prostitution market. This evidence suggests that the freeze of sex markets caused by the Covid-19 crisis might have contributed to the observed spike in domestic violence.
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