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Economische aanraders 25-08-2019

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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The Disaster of Negative Interest Policy – Thorsten Polleit
22 augustus

Those who had hoped that things could not get worse with the monetary policy of the European Central Bank (ECB) have been proven wrong. At its last meeting on 25 July 2019, the Governing Council of the ECB kept interest rates unchanged: the main refinancing rate was kept at 0.00% and the deposit rate at -0.40%. At the same time, however, ECB President Mario Draghi has prepared the ground to lower interest rates even further in the coming months. What is the reasoning behind that?
According to the ECB Governing Council, inflation is too low, and the euro area economy is too weak. It was precisely this assessment that signaled to the markets to expect a rate cut in the near future. It has now become very likely that the deposit rate will be lowered by 0.2 percentage points to -0.60% at the next ECB meeting in September; and the main refinancing rate could drop to -0.20%. The continued path into the negative interest world, however, has quite dramatic consequences.
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Why Mark Carney Thinks The Dollar Can No Longer Be The World’s Reserve Currency – Tyler Durden
24 augustus

While Jerome Powell’s highly anticipated Jackson Hole speech was, in the words of Brean Capital’s Russ Certo “underwhelming and anti-climatic”, one couldn’t say the same for the shocking luncheon speech by Bank of England’s outgoing governor, Mark Carney, titled “The Growing Challenges for Monetary Policy in the current International Monetary and Financial System”, where he dedicated no less than 23 pages to a stunning – for a central banker – cause: to describe why the dollar’s “destabilizing” reserve status role in the world economy has to end, and why central banks need to join together to create their own replacement reserve currency, one potentially tied to Facebook’s new “stablecoin” Libra, although in reality any “Synthetic Hegemonic Currency” as Carney defined it would do.
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Our Wile E. Coyote Federal Reserve – Charles Hugh Smith
21 augustus

Whatever the Fed chooses to do, it’s already failed..
Wile E. Coyote has gotten a bad rap: in all fairness, his schemes are ingenious, if overly complicated, and it’s not his fault that the Acme detonator misfires or the Road Runner doesn’t respond as predicted. Every set-up to nail the Road Runner should work. That it fails and leaves him suspended over the cliff for a woefully brief second to intuit his impending doom really isn’t his fault.
Wile E. Coyote and the Federal Reserve share a lot of similarities. Just as Wile is always trying to catch the Road Runner, the Federal Reserve and other central banks have been trying for 10 years to trigger a self-sustaining economic expansion, i.e. an expansion based on the self-reinforcing dynamics of increasing productivity driving increasing wages which then fuel consumption and investment in productivity, and so on.
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Why The Next ECB Stimulus Plan May Fail – Daniel Lacalle
24 augustus

Why The Next ECB Stimulus Plan May FailIn June 2014 I wrote an article called Draghi’s Plan does not fix Europe. In that article, I explained that the structural challenges of the eurozone -high government spending, excessive tax wedge, lack of technology leadership and demographics- were not going to be solved by a round of quantitative easing.
Now, the evidence of the European Union leads the ECB to hint at another stimulus plan. Gone is the triumphalism displayed by of the European Commission on August 2017 (read). The “strong recovery” they credited to the “decisive action of the European Union” has all but disappeared.
The slowdown in the eurozone is not similar to other economies. The ECB has slashed growth estimates consistently and currently expects a level of growth that is half of what they had projected eighteen months ago.
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What Globalism Did Was To Transfer The US Economy To China – Paul Craig Roberts
24 augustus

The main problem with the US economy is that globalism has been deconstructing it. The offshoring of US jobs has reduced US manufacturing and industrial capability and associated innovation, research, development, supply chains, consumer purchasing power, and tax base of state and local governments. Corporations have increased short-term profits at the expense of these long-term costs. In effect, the US economy is being moved out of the First World into the Third World.
Tariffs are not a solution. The Trump administration says that the tariffs are paid by China, but unless Apple, Nike, Levi, and all of the offshoring companies got an exemption from the tariffs, the tariffs fall on the offshored production of US firms that are sold to US consumers. The tariffs will either reduce the profits of the US firms or be paid by US purchasers of the products in higher prices. The tariffs will hurt China only by reducing Chinese employment in the production of US goods for US markets.
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The Great Trade Collapse: An evaluation of competing stories – Hakan Yilmazkuday
21 Augustus

During the Global Crisis, international trade decreased more than overall economic activity, despite standard trade models predicting a one-to-one relationship. This ‘Great Trade Collapse’ has been investigated extensively in the literature, resulting in alternative competing explanations. This column evaluates the contribution of each story using data from the US. The results show that retail inventories have contributed the most to the collapse and the corresponding recovery, followed by protectionist policies, intermediate-input trade, and trade finance. Productivity and demand shocks have played negligible roles.
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If a Pure Market Economy Is So Good, Why Doesn’t It Exist? – Edward Stringham, Jeffrey Rogers Hummel
20 augustus

If a pure market economy is so good, why does it not already exist? If governments are so bad, why are they dominant throughout the world today? Indeed, is the widespread adoption of free markets ever likely to occur?
Many recent authors, including Tyler Cowen,1 Cowen and Daniel Sutter,2 Randall G. 3Holcombe, and Andrew Rutten4, question the feasibility of a pure libertarian society.5 They maintain that such a system cannot arise or persist because some people will always have both the incentive and the ability to use force against others. These authors offer several reasons why, even if society starts out in a perfect libertarian world without any states (as Murray Rothbard and others advocate),6 competing groups will eventually form a coercive government.
If we are lucky, this will be not too dissimilar from what we have today, but it could be even worse. Government may not be just or desirable, but “government is inevitable.”7 While these objections have been aimed specifically at radical libertarian ideas, they apply more broadly and are relevant to the general issue of social change.
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The fundamental drivers of cryptocurrency prices – Siddharth Bhambhwani, Stefanos Delikouras, George Korniotis
24 Augustus

We do not know which characteristics affect cryptocurrency prices, if any. The column argues that there are two fundamental factors that drive prices in the long run: the trustworthiness of the cryptocurrency’s blockchain and the adoption of the blockchain. Cryptocurrencies such as Bitcoin, Ethereum, and Monero are affected by these fundamentals. In some periods prices deviate, but eventually retrace the trend.
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Suddenly Leveraged Loan Issuance Gets Rough – Wolf Richter
22 augustus

Fifth deal croaked in August. Moody’s has a cow over Ancestry.com’s deal. Deals had to be sweetened to find buyers. Retail investors bail out.
Despite the Fed’s warnings over the years about leveraged loans – including in its Financial Stability Report and in the minutes of its July meeting – the leveraged loan market has only gotten bigger and riskier and has ballooned to $1.3 trillion globally by a narrow definition, or to $3.2 trillion by a broader definition. But first signs are appearing that it’s getting rougher.
Ancestry.com, a heavily indebted, junk rated DNA-tester – owned by private-equity firms Silver Lake Partners and Spectrum Partners and by Singapore’s sovereign wealth fund – was able to complete a $1.385 billion leveraged loan, according to “sources” cited today by LCD of S&P Global Market intelligence. The loan’s primary purpose was to fund what was supposed to have been one of the largest special dividends back to its owners. But the way the loan was originally pitched ran into a wall of resistance, forcing the company to make concessions.
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***Recruiting high-tech talent with learning opportunities – Prasanna Tambe, Xuan Ye, Peter Cappelli
22 Augustus

When deciding whether to switch employers, technology workers care not only about wages, but also about other factors, such as technology, perks and the quality of co-workers. Using job board data from 2007, this column shows that high-tech workers also ‘pay’ for the opportunity to acquire training in a new technology. Tech workers require more money to leave their current employers when they are working with more interesting technologies. For older and more established technologies, this premium disappears. The effects are stronger for younger workers.
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Gold Oped – John H. Cochrane
19 augustus

Some of President Trump’s potential nominees to the Federal Reserve Board have expressed sympathy for a return to the gold standard. Conventional monetary-policy experts deride the idea—and not wholly without reason. The gold standard won’t work for a 21st-century monetary and financial system. It is possible, however, to emulate its best features without actually restoring the gold standard.
The idea behind the gold standard is simple: The government promises that if you bring in, say, $1,000 in cash, you can trade it for one ounce of gold, and vice versa. By pegging the dollar to something of independent value, it promises to solve the problem of inflation or deflation. And we don’t need central-bank wizards to run things anymore.
Yet the aim of monetary policy isn’t to stabilize the dollar price of gold; it is, rather, to stabilize the prices of all goods and services. The price of gold has varied from $1,000 to $1,800 an ounce in the past 10 years. Had the Fed fixed that price, critics say the price of everything else would have had to vary this much.
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***How the Ecommerce Boom Crushes “Mall Retailers” One by One – Wolf Richter
19 augustus

The segments at the core of the Brick-and-Mortar Meltdown.
Ecommerce sales in the second quarter 2019 soared 13.3% from a year ago to a new record of $146 billion (seasonally adjusted), the Commerce Department reported today. In 2018, ecommerce sales reached $522 billion, according to revised data released today; at this rate of growth, ecommerce sales will get close to $600 billion this year. Ecommerce sales have doubled in five years.
Ecommerce includes sales by the online operations of brick-and-mortar retailers. Many brick-and-mortar retailers have built thriving online operations:
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Forget The 2s10s: The Fed Has Lost Control Over The Most Important Yield Curve – Tyler Durden
24 augustus

Now that the 2y-10y yield curve has declined below 0bps several times in the last couple of weeks, closing at -0.020 on Friday, discussion of inverted curves and what they mean for recession risk has become elevated. So elevated, in fact, it has just hit a record high on Google Trends.
Yet while the popular focus on the 2y-10y slope is understandable – after all, that is the one yield curve that reportedly has the best recession predictive power, as 2s10s yield curve inversions have preceded the last seven recessions and nine out of the last 12 recessions…
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From the Malthusian Trap to the Keynesian Trap: The British Economy from 1810 to 2019 – Neema Parvini
17 augustus

Since Irving Fisher and John Maynard Keynes were writing in the 1930s, there have been two prevailing orthodoxies in mainstream economics:
1. That deflation is an unalloyed negative.1
2. That consumer-led economic growth must be our top economic priority.2
In this article, using British macroeconomic data from the nineteenth, twentieth, and twenty-first centuries as well as praxeological reasoning, I will seek to challenge this received wisdom by showing that growth has come at the expense of net national savings, which is not sustainable in the long run.
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***Managerial quality and productivity dynamics – Achyuta Adhvaryu, Sadish D, Anant Nyshadham, Jorge Tamayo
19 Augustus

Managerial quality remains low in firms in developing countries. In the context of the Indian garment industry, this column shows that manager characteristics matter for productivity. It argues that firms might not know what constitutes good management or how valuable it is, and that they could benefit from screening and management training in these qualities.
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***The Hidden Costs Behind Every Government Program – Gor Mkrtchian
24 augustus

When the state constructs a new bike lane, school, or begins a new space mission, the natural inclination of the majority is to cheer this new endeavor as progressive. We possess one new structure or have accomplished one new task than before; society has moved forward, the thinking goes.
The state is responsible for truly technically impressive or beautiful accomplishments like the Apollo missions, the Moscow Metro, the Palace of Versailles, etc. that most would agree clearly produce benefits for society.
Confronted with these concrete and widely celebrated examples of government accomplishments, how can libertarians deny that state action is sometimes a benevolent force in society?
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The fundamental drivers of cryptocurrency prices – Siddharth Bhambhwani, Stefanos Delikouras, George Korniotis
24 Augustus

We do not know which characteristics affect cryptocurrency prices, if any. The column argues that there are two fundamental factors that drive prices in the long run: the trustworthiness of the cryptocurrency’s blockchain and the adoption of the blockchain. Cryptocurrencies such as Bitcoin, Ethereum, and Monero are affected by these fundamentals. In some periods prices deviate, but eventually retrace the trend.
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Liquidity Crunch Mangles UK Equity & Real Estate Funds – Nick Corbishley
24 augustus

Exodus from funds with illiquid assets forces more funds to block redemptions.
Equity and property funds in the UK saw withdrawals of £2.5 billion in July, taking total outflows in 2019 so far to £12.4 billion, according to Morning Star data. Equity funds, with total assets of £691 billion, were down £1.6 billion in July and £10.6 billion so far this year. In a broad flight to safety, money market funds experienced their sixth consecutive month of inflows while investors poured £428 million into Fixed Income funds.
Morning Star analysts blamed the outflows from equity and property funds on fears over a UK recession and a no-deal Brexit. But there’s also a structural element at work: the mismatch in open-ended equity and property funds that offer investors daily redemptions while investing in assets that can take weeks or months to sell.
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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 zo min als privé.

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