Economische aanraders 22-11-2020
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.
While Household Income Falls, Central Bankers Are Pushing for Higher Prices – Daniel Lacalle
Central banks continue to be obsessed with inflation. Current monetary policy is like the behavior of a reckless driver running at two hundred miles per hour, looking at the rearview mirror and thinking, “We have not crashed yet, let’s accelerate.”
Central banks believe that there is no risk in current monetary policy based on two wrong ideas: 1) that there is no inflation, according to them, and 2) that benefits outstrip risks.
The idea that there is no inflation is untrue. There is plenty inflation in the goods and services that consumers really demand and use. Official CPI (consumer price index) is artificially kept low by oil, tourism, and technology, disguising rises in healthcare, rent and housing, education, insurance, and fresh food that are significantly higher than nominal wages and the official CPI indicate. Furthermore, in countries with aggressive taxation of energy, the negative impact on CPI of oil and gas prices is not seen at all in consumers’ real electricity and gas bills.
***Don’t Blame Covid: The Economy is Imploding from Over-Capacity and Corrupt Cartels – Charles Hugh Smith
Now that the bubble has burst, the hope is that removing the pin will magically restore the burst bubble. Sorry, it doesn’t work that way.
Here’s the fantasy: if we stop the shutdowns, the economy will naturally bounce back to its oh-so wunnerful perfection of Q3 2019. This is a double-dose of magical thinking and denial. The U.S. economy was unraveling in 2019 from 11 long years of Fed-induced over-capacity in almost everything (except integrity, competition, transparency and social cohesion) and the bone-crushing burden of corrupt, greedy cartels that have the nation by the throat.
The reality nobody dares mention is that thanks to 20 years of the Federal Reserve’s easy money, there’s rampant over-capacity everywhere you look: there’s too many cafes, bistros, restaurants, fast-food outlets, hotels, resorts, AirBnBs, unprofitable Tech Unicorns, airline flights, Tech startups, office towers, retail space, malls, absurdly overpriced apartments for rent, storage facilities, delivery services, office sublets, colleges, attorneys, unemployed workers with multiple credentials–the list of too much, too many is endless.
Rethinking the ECB’s inflation objective – Ethan Ilzetzki
The ECB is in the process of reviewing its monetary policy strategy. This column presents the latest CfM-CEPR survey, which reveals that a majority of panel members support allowing inflation to exceed 2% following periods when inflation has been below target and making more explicit its secondary objective of supporting economic growth and full employment. Only a minority support increasing the inflation target itself.
Why We Need a Free Market in Money – Thorsten Polleit
What is fiat money and what does it do?
This is essential to understand since today’s worldwide unbacked paper, or “fiat,” money regime is an economically and socially destructive scheme—with far-reaching and seriously harmful consequences. There is an answer, though, and this lies in ending the money production monopoly of states.
The Problem of Fiat Money
The US dollar, the Chinese renminbi, the euro, the Japanese yen, the British pound, and the Swiss franc represent fiat money.
Fiat money has three characteristics:
Fiat money is money monopolized by the state’s central bank. It is created by central banks and commercial banks licensed by the state.
Fiat money is mostly produced through bank credit expansion; it is created out of thin air.
Fiat money is dematerialized money, consisting of colorful paper tickets and bits and bytes on computer hard drives.
Fiat money is by no means “harmless.”
Macroprudential ring-fencing – Tomáš Konečný, Lukáš Pfeifer
The financial sector has an essential role to play in addressing the economic fallout from the Covid-19 pandemic. This column discusses the link between financial stability and restrictions on the mobility of capital along national borders of cross-border banking groups in the context of macroprudential capital buffers. It argues that apart from the direct absorption of systemic shocks, such macroprudential policies also enhance the performance of existing risk-sharing mechanisms, in particular in the case of synchronous shocks in the EU. The ESRB recommendation for restrictions of distributions during the pandemic contributes to the stabilising role of macroprudential capital buffers in the EU.
Can the “Valuations” of Office Properties in London Be Trusted, Asks Royal Institute of Chartered Surveyors – Nick Corbishley
These “valuations” are crucial to metrics of REITs and property mutual funds, including net asset value (NAV), amid concerns about conflicts of interest.
In its third quarter report on the state of the UK’s commercial property market, the Royal Institute of Chartered Surveyors (RICS) said that expectations for a decline in rents for prime office space were “the most widespread” since records began in 2014. Yet valuers have barely marked down their valuations of office properties in London, prompting some to question whether they are conflicted by the lucrative contracts they have with the UK’s largest REITs and property mutual funds.
A proposal for an auction-based sovereign debt restructuring mechanism – Tim Willems
The COVID-induced surge in public debt has raised concerns about its sustainability, further increasing the need to improve the debt-restructuring process. This column proposes an auction-based strategy to restructure sovereign debt that tailors the shape of the restructured debt stock optimally to creditor preferences, subject to debt being sustainable post-restructuring. Any debt relief provided to the country gets optimally distributed over its creditors, thus minimising the pain inflicted upon them. A version of the winner’s curse can reduce the ‘holdout problem’ of creditors trying to free-ride on each other’s contributions towards debt relief. All this should smoothen the restructuring process and enable the debtor to mobilise greater creditor support (given the amount of relief provided).
Do Not Trust Governments With The Control Of Money – Richard Ebeling
If there one thing that is fairly certain in this life – besides the seeming inescapability of death and taxes – is that once someone is appointed to almost any position in the political and bureaucratic structures of a government they soon discover how important and essential is the organization of which they are a part for the well-being of the nation. The country could not exist without it, along with its increasing budget and expanded authority. This applies to the Federal Reserve, America’s central bank, no less than other parts of government.
The US Government Will Inflate To The Bitter End – MN Gordon
The big news organizations say Joe Biden’s the next president of the USA. That claims of election fraud and fixing are baseless. Do you believe them? Do you trust them?
Regardless, Biden’s acting as if. He’s talking to foreign leaders. He’s meeting with vaccine makers. He’s making big plans. He’s planning big things. But, apparently, he’s not progressive enough.
This week, for example, an organization called Justice Democrats accused Biden of appointing corporate-friendly insiders. They say these “corporate-friendly insiders […] will not help usher in the most progressive Democratic administration in generations.”
***US Urgently Needs To Challenge China’s Chokehold On Rare Earth Materials – Lawrence Franklin
One of China’s most significant advantages in the race to dominate future hi-tech industrial production, among just about everything else, is its chokehold on “rare earth materials” (REM). These are materials — and the raw minerals from which they are extracted and processed — vital to the manufacture, for instance, of advanced weapons, fossil-free alternative energy systems, communication devices, computer products, and microelectronic networks.
The Mnuchin-Powell Affair over the Fed’s “Special Purpose Vehicles” in Dollars & Effects – Wolf Richter
Why do bondholders and leveraged speculators have to be enriched, instead of providing fiscal relief to the unemployed and small businesses? That’s the question.
Fed Chair Jerome Powell replied on Friday afternoon with his own “Dear Mr. Secretary” letter to Treasury Secretary Steven Mnuchin’s “Dear Chair Powell” letter on Thursday. Both letters were full of compliments for the other and for their cooperation and for their success in inflating asset prices.
Fintech and big tech credit markets around the world – Giulio Cornelli, Jon Frost, Leonardo Gambacorta, Raghavendra Rau, Robert Wardrop, Tania Ziegler
Credit markets around the world are undergoing a transformation. Fintech and big tech firms are providing more lending to households and small businesses. Using a new database, this column estimates that fintech credit flows reached $223 billion in 2019, while big tech credit reached $572 billion. Both forms of credit are larger where there is greater (unmet) demand for credit and where economic and institutional factors favour the supply of such lending. The Covid-19 pandemic represents an important test for these new business models.
Gold: Testing Patience But Toeing The Line (For Now) – Bryce Coward
Since early August the “barbarous relic” has corrected some 9% while many other assets have ascended to all-time highs. This has no doubt caused a bit of consternation for holders of gold who have been using the metal not as a hedge, but as a capital appreciation vehicle unto itself. For what it’s worth, we think it has potential to be both, but that is a topic for another day. In any case, gold is clearly testing folk’s patience here and causing some to throw in the towel, including, most recently, one of the largest banks.
A Drop in the Money Supply Was Not the Cause of the Great Depression – Frank Shostak
In his writings, Milton Friedman blamed central bank policies for causing the Great Depression. According to Friedman, the Federal Reserve failed to pump enough reserves into the banking system to prevent a collapse in the money stock.1 The adjusted money supply (AMS), which stood at $26.6 billion in March 1930, had fallen to $20.5 billion by April 1933—a decline of 22.9 percent.
According to Friedman, as a result of the collapse in the money stock, economic activity followed suit. Thus, by July 1932 year-on-year industrial production had fallen by over 31 percent (see chart). Also, year-on-year the Consumer Price Index (CPI) had plunged. By October 1932 the CPI was down 10.7 percent (see chart)
(Decision) trees and (random) forests: Urban economics, historical data, and machine learning – Pierre-Philippe Combes, Gilles Duranton, Laurent Gobillon, Clément Gorin, Yanos Zylberberg
Applying machine learning to rich historical data sources provides the opportunity to draw novel insights for fields such as urban and spatial economics. Using evidence from France, this column shows how such information might be derived from historical maps to shed new light on the growth of towns and agglomerations, and could inform our understanding of various human behaviours from community evolution to agricultural productivity.
Online Sales by Category, in Weirdest Economy Ever – Wolf Richter
Online sales jumped 37% in Q3, after 44%-Spike in Q2. Online food-and-beverage sales up 160%.
Ecommerce retail sales jumped 37% in the third quarter, compared to a year ago, to $210 billion (seasonally adjusted), after skyrocketing 44% in the lockdown-inspired second quarter, according to the Commerce Department today.
Ecommerce sales have more than doubled over the past four years. Sales in Q2 and Q3 blew past last year’s Q4, the holiday-sales quarter that normally nothing comes close to until the next holiday-sales quarter – and this simply hasn’t happened before
Resilience and fragility in global banking: Impacts on emerging economies – Marina Conesa Martínez, Giulia Lotti, Andrew Powell
Global banks are highly connected, and banking systems are only as strong as the weakest links in the network. This column analyses cross-border syndicated lending to emerging and developing countries from 1993 to 2020 and finds evidence of both resilience and fragility in the global financial system. Contagion through co-lenders affected bank lending more strongly before and during the 2008-09 financial crisis but significantly less in a period after the crisis, consistent with the idea that the reduction in network density as a result of the crisis may have increased resilience to ‘normal shocks’. But Covid-19 is clearly no normal shock, and its impacts are likely spreading through the network, affecting the supply of loans to emerging economies.
China’s New Five-Year Plan Exposes the Wishful Thinking behind Socialist Regimes – Mark A. DeWeaver
On October 29, the nineteenth Central Committee of the Chinese Communist Party concluded its fifth plenum, a four-day meeting devoted primarily to laying the groundwork for China’s fourteenth five-year plan, which covers the period from 2021 to 2025. Most of what has been made publicly available about the planners’ thinking is hardly novel—no one would have been surprised to read that they plan to “hold high the banner of socialism with Chinese characteristics,” for example. But one thing in particular stands out—the hope that the country can become less dependent on the outside world, both for advanced technology and as a source of final demand.
***The One Chart That Predicts our Future – Charles Hugh Smith
That our “leadership” reckons “bread and circuses” is what the stripmined bottom 90% want is beyond pathetic.
There’s one chart that predicts our future, and no, it’s not related to Covid–it’s related to capital, specifically the concentration of capital and power in the hands of the few at the expense of the many.
The chart is a map, courtesy of Brookings, showing the roughly 500 counties Biden won and the roughly 2,500 counties Trump won. This might seem like a chart of political polarization, and superficially that’s clear, but the real polarization is economic-financial: there are two economies in America, and there’s very little commonality in the two economies.
Unravelling deep integration: Local labour market effects of the Brexit vote – Beata Javorcik, Ben Kett, Katherine Stapleton, Leyla O’Kane
The Brexit referendum created the threat of a trade policy reversal on an unprecedented scale, with the potential ‘unravelling’ of decades’ worth of deep integration between the UK and the world’s most integrated trading bloc. This column examines how this affected UK labour demand. It finds that UK regions exposed to the threat of future barriers on professional services exports experienced a substantial decline in the posting of online job adverts after the Brexit vote, relative to less exposed regions. A back-of-the-envelope calculation indicates that this resulted in approximately 1.5 million fewer job adverts posted after the vote than might have occurred otherwise.
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