Economische aanraders 24-02-2019
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.
***Credit Exhaustion Is Global – Charles Hugh Smith
Europe is awash in credit exhaustion, and so is China.
The signs are everywhere: credit exhaustion is global, and that means the global growth story is over: revenues and profits are all sliding as lending dries up and defaults pile up.
What is credit exhaustion? Qualified buyers don’t want to borrow more, leaving only the unqualified or speculators seeking to save a marginal bet gone bad with one more loan (which will soon be in default).
Lenders are faced with a lose-lose choice: either stop lending to unqualified borrowers and speculators, and lose the loan-origination fees, or issue the loans and take the immense losses when the punters and gamblers default.
Europe is awash in credit exhaustion, and so is China. China’s situation is unique, as credit expansion has been propping up the entire economy, from household wealth to corporate speculation to the export sector.
Central Banks Get Scared: Forget About Promises to Reduce Balance Sheets – Ryan McMaken
After two years of a lot of aggressive-sounding talk about reducing the Fed’s balance sheet and raising the target interest rate, the Fed in recent weeks has reversed itself, and declared that now’s a time to take things more slowly.
At the January FOMC meeting, officials:
widely favored ending the runoff of the central bank’s balance sheet this year while expressing uncertainty over whether they would raise interest rates again in 2019, minutes of their January meeting showed.
“Almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve’s asset holdings later this year,” according to the record of the Federal Open Market Committee’s Jan. 29-30 gathering released Wednesday.
This just represents more of the “we’ll return to normal someday!” routine we’ve been getting from the Fed for about a decade. Over that time, we’ve repeatedly heard that once the economy is strong again, the Fed will reduce its balance sheet back to normal levels, and will raise the Fed Funds rate back to what had historically been more normal rates. Yet, after years of near-zero rates, and a Fed balance sheet of more than $4 trillion, it looks like the Fed lacks the resolve to do anything about it. Yet, if the economy isn’t strong enough right now, with record-low unemployment, and surging job growth, when will it be strong enough?
A Recession Indicator Having A PERFECT Record For 70 Years Is About To Be Triggered – Mac Slavo
The unemployment rate has been a perfect forecaster of a recession in the past 70 years, and it appears to be edging closer to triggering that signal. “It’s never been wrong. It’s something to watch,” said Joseph Lavorgna, chief economist for the Americas at Natixis.
As the unemployment rate hovers around 4% (the number reported in the mainstream media) a more accurate unemployment number is 8.1%. This takes into account those who have given up on finding work and those who are underemployed (workers who are part-time but want full-time employment), This more accurate unemployment number is called the U-6, while we often hear the U-3 reported on the news. But even former Federal Reserve chair Janet Yellen says the U-6 is a much more accurate indicator of where things are with regards to the economy.
Blain: European Banks Are The Most Successful Ponzi Scheme Of All Time – Bill Blain
I must post this line from one of my favourite Financial sector commentaries – Duncan Farr of Jeffries who covers banks: “Here we are 5 weeks ahead of Brexit, and the top 2 performing banks in Europe are Lloyds followed by RBoS.” If you ever wanted a clearer hint the supposed Brexit crisis and imminent collapse of UK plc might just be a fictitious political construct, then there you are. Its fascinating just how sanguine the markets have become about the divorce. Sterling is up and who cares?
I have often been told I worry about all the wrong things. According to BAML, (reported on BBerg), the biggest fear of European investors currently is a Worldwide Economic Slump, with 30% of respondents citing it as their primary worry. Yep. I can see why that would be an issue. Only 2% of European investors surveyed by BAML rank Brexit as their primary fear. It’s not even in the top 5! (For the record, my primary fear is a Global Liquidity Storm – the sudden and catastrophic drying up of liquidity following a shock..)
***The missing English middle class: Evidence from 60 million death and probate records – Neil Cummins
Within countries, the driving force behind the 20th century’s dramatic drop in inequality were the declines in the wealth shares of the top 1%. Based on 60 million death and probate recordscovering a period of 100 years, this column argues that in the case of Britain the distributional gains from the Great Equalisation were exclusively confined to the top 30% of the wealth distribution. This left the nation’s social and political fabric vulnerable to the protest vote of many in 2016 to leave the EU, following the austerity induced by the financial crisis.
Fed Tightening And Crumbling Fundamentals Expose The Recovery Lie – Brandon Smith
t is hard to say exactly when it started – in 2008 in the midst of the credit crisis, in the early 2000’s when the Federal Reserve initiated artificially low interest rates which helped to create the vast US mortgage bubble, or maybe the root goes all the way back to 1913 when the Federal Reserve was founded, but somewhere along the line America entered severe economic decay. One certainty is that signals in the fundamentals become visible every time the Fed inflates a financial bubble to stall a crash and then tightens policy without waiting for the economy to show true alignment.
This pattern is, in my view, not about the Fed “bumbling in the dark”. In fact, I see most Fed activities as quite deliberate, including the creation and deflation of large credit and equities bubbles. Sometimes these crashing bubbles are used as an excuse by the Fed to launch an even more invasive program of stimulus, and sometimes the bubbles are allowed to collapse, allowing international banks to vacuum up hard assets for pennies on the dollar. During the most widespread collapse events, the banking elites use the chaos and distraction to not only centralize assets, but shift entire geopolitical and fiscal dynamics in order to centralize power.
Real exchange rates for economic development – Martin Guzman, José Antonio Ocampo, Joseph Stiglitz
The role of exchange rate policies in economic development is still largely debated. This column argues that there are theoretical foundations for policies that guarantee competitive and stable real exchange rates. When there are constraints on the available set of policy instruments, the complementary use of competitive exchange rates with export taxes for traditional export sectors would result in effectively multiple real exchange rates. The empirical evidence suggests that both foreign exchange interventions and capital account regulations can be effectively used for maintaining competitive exchange rates and for dampening the effects of boom-bust cycles in external financing and the terms of trade on the exchange rate, thereby promoting growth and stability.
Ben Bernanke killed the world economy – Martin Hutchinson
This column has contended for several years, based on empirical data observations from several countries, that low interest rates worldwide were killing productivity growth. A University of Chicago paper finally provides some academic back-up for this contention and suggests a mechanism through which it takes place. There are other mechanisms also, and I would suggest that the Ben Bernanke-inspired wild monetary experimentation from 2008 on has done more damage to the world economy than any other initiative in the history of mankind.
As Lending Standards Fall, Worries of a New Bust Rise – George Pickering
With more than a decade having passed since the financial crisis of 2007/8, the mainstream economics profession still seems to be almost as far from agreeing on the ultimate causes of that crisis as they were from being able to foresee its arrival back in the mid-2000’s. If asked about the causes of that crash, the average non-Austrian economist is unlikely to dwell on the prickly question of what ultimately caused the housing bubble and bust, and will more likely pivot to the easier, more widely agreed upon issue of how collateralized debt obligations (CDOs) created channels for the housing crisis to spread into a full-blown financial crisis. In the run-up to the crisis, US financial institutions heavily invested in particular types of CDOs called mortgage-backed securities, which essentially packaged together mortgages from a wide array of different locations. It was thought unlikely that house prices could decline across the whole of the US simultaneously, and the housing market was booming, so packaging together mortgages from different locations into CDOs seemed like a profitable and risk-free investment. By the time house prices began to decline, however, key banks had invested so heavily in these mortgage-backed CDOs that the housing crash brought down the whole financial system with it. Such, in very broad and simple terms, is the account of the causes of the 2007/8 crash with which many mainstream economists would agree.
BofA: Here Is The Sequence Of Events That Will Lead To The Next Crash – Tyler Durden
Whether traders are actually buying stocks, or as the case now appears to be for 12 consecutive weeks, they are not, is mostly irrelevant: even with 3 straight months of outflows from mutual funds and ETFs, the important thing is that someone is pushing the market higher, and whether that is buybacks or a massive short squeeze, the S&P is rapidly approaching the massive resistance level at 2,800 where the last three breakout attempts have fizzled.
So while technicals will surely be a major hurdle to overcome, there is a case that sends the S&P back to its all time highs around 2,950. According to BofA chief investment strategist Michael Hartnett, while catalysts for the S&P move from 2350 to 2750 were bearish positioning and panicking policy makers, the catalysts for fresh upside to new highs would be “green shoots” & “greed” even as few see EPS acceleration, while most think the Fed is “pushing-on-a-string.”
Which One Wins: Central Planning or Adaptive Networks? – Charles Hugh Smith
Those who are betting on Central Planning do not understand the essential role of adaptation.
The global economy is in the midst of a grand experiment pitting centralization (Central Planning) against the evolutionary model of adaptive, self-organizing networks. Centralization is the dominant dynamic of the Status Quo everywhere: the economies of China, Japan, Europe and the U.S. are all dominated by Central Planning: central banks, central state agencies, and Deep State / private sector nodes of wealth and power that pull the systemic strings.
Central Planning–the concentration of power and wealth in the hands of the few–is presented as the “solution”: in China, the “solution” is a Total Information Awareness Social Credit Score system of centralized control of the populace. In the U.S., Medicare for all– the PR term for centralized cartel-state profiteering on a vast scale–is just one of many Central Planning “solutions” being touted by the “Progressives.”
European Oil Demand Is Shockingly Weak – Nick Cunningham
One of the unexpectedly soft spots in global oil demand recently has been in Europe.
To be sure, Europe was never expected to be a major driver of oil demand growth. Consumption has been mostly flat for a long time. However, demand has actually declined year-on-year in the past few months, which suggests a slowdown in the European economy.
Most glaringly, demand in Germany has fallen significantly. According to Standard Chartered, demand in Germany fell by 302,000 bpd in December compared to a year earlier. That was the tenth consecutive month of an annual decline in consumption in excess of 150,000 bpd.
In November, Germany seemed to be the only source of fragility. But in December, the weakness popped up in many more European countries.
***Gaat de EU Japan achterna en wordt het een zombie-economie? – Alexander Sassen van Elsloo
Her en der in de financiële pers duiken er verhaallijnen op dat de EU Japan achterna zal gaan. De ECB zal (weer) flink gaan printen en allerlei bezittingen opkopen om zo een recessie met de daarbij behorende sanering tegen te gaan. De business cycle moet namelijk dood en de centrale banken denken een manier gevonden te hebben om dit, zonder nadelige consequenties, voor elkaar te krijgen. Een new monetary normal zeg maar. Kan en zal de EU daadwerkelijk de Japanse route gaan bewandelen?
Tot einde 80-er jaren van het vorige millennium, was Japan een succesverhaal. Overal kochten de Japanners bedrijven, kunst, auto’s en zo verder op. Er werd gerept dat de Japanners elk groot bedrijf zouden opkopen. Binnen Japan waren alle asset prices door hun dak gegaan doordat de centrale bank van Japan banken min of meer forceerde om leningen te verschaffen aan zowat iedereen die twee woorden kan vormen.
New Study Confirms that the “Gender Pay Gap” Results from Women Making Different Choices – Ryan McMaken
In November, Harvard economists Valentin Bolotnyy and Natalia Emanuel published a new working paper titled “Why Do Women Earn Less Than Men? Evidence from Bus and Train Operators.”
In the study, Bolotnyy and Emanuel study unionized bus and train operators to determine whether or not a gender pay gap exists, and what its causes might be.
The use of unionized workers was helpful to the researchers because the rigid union rules meant that few pay decisions were left up to managers who might otherwise be blamed for bias in these cases.
As it is, the union rules provided clear rules for how seniority affects pay and setting of work hours.
This allowed the researchers to focus on the behavior of the workers themselves while largely ignoring the role of supervisor decisions.
What Trucking & Freight Just Said About the Goods-Based Economy in the US – Wolf Richter
Something has to give.
Starting to be a fascinating phenomenon: Rates charged by trucking companies and other transportation providers continue to surge on a year-over-year basis even as the volume of shipments has dropped below where it had been a year ago, while the “capacity squeeze” of 2018 has disappeared, and as the price of fuel is down year-over-year.
Freight shipment volume across all modes of transportation – truck, rail, air, and barge – in January ticked down (-0.3%) from January last year, according to the Cass Freight Index, the second year-over-year decline in a row. Those two declines are the first since the transportation recession of 2015 and 2016
The economic effects of density: A synthesis – Gabriel Ahlfeldt, Elisabetta Pietrostefani
Most countries pursue policies that implicitly or explicitly aim at promoting ‘compact urban form’, but so far these policies have not been well-grounded in evidence. This column summarises the state of knowledge on the economic effects of density on various economic outcomes. It concludes that densification policies may lead to aggregate welfare gains, but there may be regressive distributional consequences.
Two Simple Questions Keynesians Can’t Answer – Gary North
Let us say that a carpenter wishes to cut fifty boards for the purpose of laying the floor of a house. He has marked his boards. He has set his saw. He begins at one end of the mark on the board. But he does not know that his seven-year old son has tampered with the saw and changed its set. The result is that every board he saws is cut slantwise and thus unusable because [the board is] too short except at the point where the saw first made its contact with the wood. As long as the set of the saw is not changed, the result will always be the same.– Cornelius Van Til
I first read this in the summer of 1963. I spent the academic year 1963/64 studying under Dr. Van Til. I have never forgotten this analogy. Just as a sharp buzz saw cannot cut straight if it is set at a crooked angle, sharp people cannot think straight if they are set at a crooked angle. You can sharpen a crooked buzz saw ever so precisely. It will still not cut straight. The same is true of intellectual defenders of obvious nonsense. This analogy has served me well ever since.
Over the years, I have become convinced about just how well this analogy applies to Keynesians.
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