Economische aanraders 25-10-2020
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.
Challenges for central banks – John H. Cochrane
On October 20, I was graciously invited to give a talk at the ECB Conference on Monetary Policy: bridging science and practice.
I survey six challenges facing central banks: 1. Interest rates and inflation; 2. Policy reviews; 3. Financial reform post 2008 4. New challenges to finance post covid; 5. The many risks ahead; 6. Central banks and climate.
For the whole thing, go here for a pdf. A video of my presentation is here. (The conference website will have all videso soon.) Items 1-5 are mostly interesting for monetary economists, though general readers might find my summary and distillation of the Fed policy review of some interest.
Here, I post the section on climate change and conclusion, which are the most novel. And if you like the general approach and want to see it applied to the rest of what central banks are up to, that’s another advertisement to read the whole talk pdf.
Central Bank Digital Currency, A Growth Or Financial Repression Tool? – Daniel Lacalle
The main central banks have been discussing the idea of implementing a digital currency. The rationale behind it escapes many citizens. Most transactions in the main global currencies are conducted digitally and one could say that the largest and most traded currencies, the US Dollar, Euro, Yen, British Pound, Swiss Franc, and the Yuan are already functioning as mostly digital money.
Words versus deeds: How central banks manage expectations – Paweł Baranowski, Wirginia Doryń, Tomasz Łyziak, Ewa Stanisławska
To achieve macroeconomic stabilisation, central banks attempt to manage the expectations of the private sector. Decisions on short-term interest rates and communication can both impact expectations, but communication is especially important under the effective lower bound, when the room to move interest rates down is limited. Using data from Poland, this column shows that while monetary policy shapes the expectations of the private sector through both communication and interest rate decisions, the impact can differ depending on the variable forecasted and on the forecasting horizon.
Furloughed Jobs Disguise the Eurozone Employment Crisis – Daniel Lacalle
The United States jobs recovery slowed down slightly in September, but the employment recovery is still faster than in most comparable economies. The jobs report showed a healthy 661,000 gain in nonfarm payrolls last month. Much of the difference with consensus came from shifts in government payrolls, which fell 216,000 in September. However, private payrolls rose by a healthy 877,000. This means that unemployment may have fallen below the 8.1 percent level in September.
Sorting through the Data Chaos in Unemployment Claims: Week 31 of U.S. Labor Market Collapse – Wolf Richter
California Emerged from its “Reset.”
California’s Employment Development Department – whacked by reports of chaos and massive backlogs in processing and paying unemployment claims, and by waves of fraudulent claims, particularly under the federal Pandemic Unemployment Assistance (PUA) for the self-employed – announced on September 19 that it had “paused” processing claims for a “reset” period during which it would fix the issues and catch up with its backlog.
Printing Money at a “Constant” or “Stable” Rate Won’t Prevent Boom-Bust Cycles – Frank Shostak
According to Milton Friedman, the key cause of the business cycles is the fluctuations in the growth rate of money supply. Friedman held that what is required for the elimination of these cycles is for central bank policymakers to aim at a fixed growth rate of money supply:
Down-to-Earth View of the “Recovery” in Near-Real Time, Eight Months into the Pandemic – Wolf Richter
As seen by indicators that have sprung up as a result of the Pandemic.
The US economy has turned into the weirdest concoction ever. Some aspects are booming, such as anything related to online shopping and entertainment, while other aspects are in the worst depression ever, such as airlines and hotels. So now eight months into the Pandemic, here’s my monthly update on the recovery in cities, in terms of what people are doing and where they’re going, if anywhere, as seen by the near-real-time indicators that have sprung up as a result of the Pandemic.
***No, the Stock Market Isn’t a “Leading Indicator” of Economic Prosperity – Chris Calton
“STOCK MARKET UP ANOTHER 300 POINTS,” Donald Trump tweeted on October 12, with characteristic overcapitalization. “GREATEST LEADING INDICATOR OF THEM ALL!!!”
President Trump’s use of the stock market as an economic indicator is hardly unusual. Democrats like to tout the stock market performance under Obama as a counterpoint to Trump’s boasting. This type of thinking, which equates stock market performance with economic health, is widespread. It’s also somewhat understandable; by the twentieth century, middle-class stock ownership had become the standard strategy for saving and investing, giving most citizens a personal interest in market activity. When the market goes up, investors benefit, and this makes market activity a powerful political issue.
Safely increasing the supply of safe assets: Internationalising the euro in the age of COVID-19 – Angela Capolongo, Barry Eichengreen, Daniel Gros
Seeking to internationalise the euro is now an official policy of EU institutions. But a constraint on wider use of the euro, by central bank reserve managers in particular, is the shortage of safe euro assets – a problem that is being made worse by the ECB’s asset purchase program. This column proposes a solution to this problem: issuance by the ECB of its own certificates of deposit.
***Everything We Assume Is Permanent Is Actually Fragile – Charles Hugh Smith
Masking the rot and fragility is not the same thing as strength or permanence.
The great irony of the past 75 years of expanding consumption is the belief that all these decades of success prove the system is rock-solid and future success is thus guaranteed. The irony lies in the systemic fragility that’s built into the large-scale industrial production that generates endless surpluses of energy, food, fresh water, etc. and the global financial system that delivers endless surpluses of capital and credit to be distributed by public authorities and private owners of capital.
The key driver of increasing efficiencies has been scaling up production by concentrating ownership and capacity into a few quasi-monopolies/cartels. In industry after industry, where there were once dozens of companies, there are now only a handful of behemoths with outsized market and political power which they wield to retain their dominance.
Gold And Crypto: Is This How Charts Look Before A Monetary Collapse? – Hubert Moolman,
It is the the massive debt. It cannot be serviced. It will collapse the whole system.
The gold, silver and cryptocurrencies charts are showing signs of going parabolic. The US dollar is close to confirming a massive breakdown.
Gold, silver and cryptocurrencies all provide “crisis value” by simply being an acceptable debt-based-fiat alternative. It is only later in this crisis that we will see a divergence between cryptocurrency and precious metals.
The Destruction Of The Euro – Alasdair Macleod
The Eurozone is bust. The deterioration of TARGET2 imbalances have been hardly noticed, but in recent months it has been alarming. Despite official denials over the years that it is a matter of concern, it is increasingly obvious that the national banks of Italy, Spain and other nations with increasing bad debts are hiding them within the TARGET2 system. The first wave of Covid-19, which is leading to bankruptcies throughout the Eurozone, is now being followed by a second wave, which will almost certainly take out a number of important banks, in which case the cross-border euro system will implode.
Amid Eviction Moratorium, Wiggle Room Tightens for Retail Landlords & Tenants in the UK – Nick Corbishley
Land Securities, a Giant UK REIT, announced that it would try to sell a large portion of its properties. No buyers identified yet.
Land Securities (Landsec), one of the UK’s largest REITs, has unveiled plans to sell of up to a third of its £12.8 billion portfolio in a huge shift away from the retail market. It has not yet identified buyers. Besides its retail properties, LandSec owns a vast portfolio of London offices and specialist assets consisting of hotel, leisure and other properties. Those specialist assets, together with its retail properties, represent around half of the portfolio’s total valuation. But some of them are now on the chopping block.
Managing post-Covid sovereign debts in the euro area – Stefano Micossi
As the world comes to terms with a post-Covid reality, the euro area must confront its growing fiscal and sovereign debts. This column argues that common euro area policies are justified in order to address sovereign debt externalities and risks to financial stability. It considers a mechanism involving large transfers of euro area sovereigns from the ECB to the ESM as a possible way forward.
How Long Can the Fed Keep This Time Bomb from Exploding? – Pavel Mordasov
Since the outbreak of the coronavirus, the United States has experienced one of the most unprecedented economic interventions in all of its history. Since March and April both the Federal Reserve and the US federal government have injected trillions into the economy in hopes of stabilizing it and reducing unemployment. At the expense of the public, both institutions have handicapped themselves for the future, and it will be extremely difficult to ever return to a “normalized” policy situation without triggering a larger economic crisis.
Will the Stock Market Be Dragged to the Guillotine? – Charles Hugh Smith
The Fed’s rigged-casino stock market will be dragged to the guillotine by one route or another.
The belief that the Federal Reserve and its rigged-casino stock market are permanent and forever is touchingly naive. Never mind the existential crises just ahead; the financial “industry” (heh) projects unending returns of 7% per year, or is it 14% per year? Never mind the details, the Fed has our back and since the Fed is forever, so too will be the gains for everyone playing the rigged games in the Fed’s casino.
What makes this presumption so childishly naive is the tides of history are about to sweep away the era of central banks, their fiat currencies and their rigged casino markets. That the global citizenry might realize these are all forms of financial tyranny doesn’t occur to to the Financial Aristocracy, which has luxuriated in the neofeudal dominance of finance–the modern-era equivalent of Monarchy and the rights of royalty.
What ‘The Great Reset’ Architects Don’t Want You To Understand About Economics – Matthew Ehret
It shouldn’t come as a surprise that the Vice President of the World Bank Carmen Reinhardt recently warned on October 15 that a new financial disaster looms ominously over the horizon with a vast sovereign default and a corporate debt default. Just in the past 6 months of bailouts unleashed by the blowout of the system induced by the Coronavirus lockdown, Reinhardt noted that the U.S. Federal Reserve created $3.4 Trillion out of thin air while it took 40 years to create $14 Trillion. Meanwhile panicking economists are screaming in tandem that banks across Trans Atlantic must unleash ever more hyperinflationary quantitative easing which threatens to turn our money into toilet paper while at the same time acquiescing to infinite lockdowns in response to a disease which has the fatality levels of a common flu.
Quantitative easing policies and exchange rates – Luca Dedola, Georgios Georgiadis, Johannes Gräb, Arnaud Mehl
Since the onset of the Global Crisis in 2008, central banks around the world have rolled out a broad array of quantitative easing measures, resulting in dramatic expansions of their balance sheets. This column reveals that that these policies have had large and persistent effects on the dollar/euro exchange rate, mainly through shifts in exchange rate risk and short-term interest rates between the two currencies. Changes in expectations about the future monetary policy stance also affect the response of the dollar/euro exchange rate to quantitative easing.
Housing Market Goes Nuts, Everyone Sees it, But it Can’t Last – Wolf Richter
There’s a housing shortage until there’s suddenly a housing glut: see San Francisco et al.
Another batch of crazy housing data yesterday. Crazy in the sense that the housing market, or rather part of it, namely the higher end of it, has gone totally crazy and that by now everyone knows that this isn’t “sustainable,” that “there’s no way it can last forever,” as Redfin CEO Glenn Kelman told CNBC. And he pointed out what everyone has already been pointing out, that “part of what is fueling this boom is that the economy has just split into two, and rich people are able to access capital almost for free, so, of course, they’re going to use that money to buy homes.”
Recent College Grads Face Worst Employment Prospects In Decades Thanks To COVID-19 – Tyler Durden
Just like their forebears (the millennials who graduated from college between 2008 and 2012) it appears Gen Z is facing a labor-market shock of serious magnitude, spurred by the coronavirus pandemic and its attendant impact on the American economy, swelling the unemployment rolls while also disrupting the typical pipeline of internships and entry-level gigs that usually help students find permanent entry-level jobs.
***NASA Awards Houston Space Firm $47 Million Moon Drilling Contract – Tyler Durden
NASA selected Houston-based company Intuitive Machine to land an ice-mining drill on the moon’s south pole by December 2022.
The space agency agreed to pay Intuitive Machines $47 million to land Polar Resources Ice Mining Experiment (PRIME-1) on the moon in the first-ever mining mission to drill below the lunar surface, in search of water ice. A mass spectrometer will be used to determine how much of the ice changes from solid to vapor on the lunar surface vacuum. The data will assist NASA’s rover, the Volatiles Investigating Polar Exploration Rover (VIPER), searching for water ice at the moon’s pole to determine an area that will support a human presence in 2024.
Green zones: A safe path towards free movement and a lasting recovery – Bary Pradelski, Miquel Oliu-Barton
On 13 October 2020, EU member states agreed to common criteria for mapping epidemiological risk and to implement non-discriminatory travel restrictions. The strategy agrees in its key aspects with the concept of green-zoning introduced in the original version of this column, which was published in April and circulated to European decision makers. It is based on four principles: (1) divide each country into smaller zones; (2) label zones green if the virus is under control, and red otherwise; (3) adopt colour-dependent public health measures; (4) allow free travel between green zones, but control other travel. This approach is aimed at curbing the spread of the virus while ensuring lasting economic recovery.
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