Economische aanraders 28-04-2019
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.
***Immigrants’ earnings growth and return migration from the US – Maggie R. Jones
Nearly 40% of documented new arrivals to the US in 2005 left within ten years, but who return migrates and why is often overlooked in policy debates regarding immigration. This column uses survey data and earnings records from 2005 to 2015 to show that a decline in earnings is a strong predictor of return migration. Those who stayed for the decade saw their wages reach parity with native-born workers, while those who left had seen a steep decline in wages in the years before departure. Further analysis shows that highly educated immigrants are more likely to leave the US within a decade of arrival.
China, Other Emerging Asia Sink World Trade – Wolf Richter
World trade volume falls most since Financial Crisis.
World trade volume, which had been growing at a strong pace last year, peaking at 5.6% year-over-year growth in October, started turning down in November, and by February — according to the Merchandise World Trade Monitor, released today by CPB Netherlands Bureau for Economic Policy Analysis — it was down 3.4% from the peak in October and down 1.1% from February a year earlier.
The less volatile three-month moving average sank for the fourth month in a row, and is down 2.4% from the October peak and down about 1% from a year earlier. This kind of decline in world trade just hasn’t happened since the Global Financial Crisis:
Can Central Banks Avoid Booms and Busts with the “Right” Amount of Money Creation? – Frank Shostak
Most economists are of the view that a growing economy requires a growing money stock, because economic growth gives rise to a greater demand for money, which must be accommodated.
Failing to do so, it is maintained, will lead to a decline in the prices of goods and services, which in turn will destabilize the economy and lead to an economic recession or, even worse, depression.
For most economists and commentators, the main role of the Fed is to keep the supply and the demand for money in equilibrium. Whenever an increase in the demand for money occurs, to maintain the state of equilibrium, the accommodation of the demand for money by the Fed is considered a necessary action to keep the economy on a path of economic and price stability.
As long as the growth rate of money supply does not exceed the growth rate of the demand for money, then the accommodation of the increase in the demand for money is not considered as money printing.
The effectiveness of the global financial safety net depends on the tools and shocks – Beatrice Scheubel, Livio Stracca, Cédric Tille
More than ten years on from the start of the Global Crisis, policymakers are discussing the effectiveness of the global financial safety net – the combination of reserves, central bank swap lines, regional financial arrangements, and the IMF. This column evaluates the effectiveness of the use of IMF support and foreign reserves in globally driven crises. It finds that actual use of IMF support helps during currency crises – the type of crisis for which the support was originally designed. Use of reserves is of limited effectiveness and only during sudden stops.
Why a Chernobyl-like Financial Disaster is Inescapable – MN Gordon
In the early morning hours of April 26, 1986 – roughly 33 years ago – things went horribly wrong in the town of Pripyat, in northern Soviet Ukraine. Reactor No. 4 at the V. I. Lenin Nuclear Power Plant, also known as the Chernobyl Nuclear Power Plant, was overwhelmed by an uncontrolled reaction. There was no stopping it.
Two initial explosions blew the top off the reactor. Once exposed, plumes of fission matter were wafted into the atmosphere by an open-air graphite fire. Before long, this radioactive material precipitated onto Western Europe and the Western USSR.
Nine days later the fire was finally contained. But not before an estimated 400 times more radioactive material was released than from the atomic bombing of Hiroshima and Nagasaki. Twenty-eight firemen and operators died from acute radiation syndrome in the following days and months.
What exactly caused the Chernobyl disaster is still a matter of disagreement. The first official explanation of the accident was later acknowledged to be erroneous. But there is agreement on the fact that the nuclear disaster would not have happened when it did if the workers had played hooky and gone fishing.
Instead, an ill-planned late-night safety test to simulate a power-failure set in motion the very chain reaction that led to the disaster. During the experiment, the emergency safety and power-regulating systems were both intentionally turned off. Then the operators attempted to boost the reactor output; a violation of the approved test procedure. Soon after, all control was lost…
Unemployment in Spain Still Miserably High Despite Six Years of Economic Growth. Now it Ticked Up Again – Don Quijones
“The worst labor market” on the planet: unemployment exceeded 20% in three downturns over the past 35 years.
Spain’s unemployment rate ticked up by a quarter percentage point to 14.7% in the first quarter of 2019, when economists had expected a down tick, as the number of people claiming unemployment benefits increased by 50,000 to 3.35 million, according to data released by the National Statistics Institute (INE). Although it’s not unusual for unemployment in Spain to tick up during the first quarter, this is the biggest quarter-on-quarter increase in six years and it highlights a persistent weak link in an economy that has done nothing but grow since late 2013.
The biggest job losses were registered in the services sector (69,000), followed by industry (8,600) and construction (2.500), raising concerns that the generalized economic slowdown affecting the European economy has spread to one of the region’s fastest growth engines. There are also fears that the recent slowdown of Spain’s tourist boom could lead to a larger cull of local jobs than usual this year.
BofA: Robots Are Outperforming Humans Who Are “Frustrated”, “Paranoid” And “Exhausted” – Tyler Durden
With the S&P hitting all time highs, one would think that investors would finally get off the skeptical fence they have been sitting on since October, and – finally proving Marko Kolanovic correct – put their capital into the stock market.
But one would be wrong, because for one more week, the most distinct trend of 2019 – professional investors taking money out of equity funds and putting it into bond funds – has continued, with EPFR reporting that last week another $4.4BN was redeemed from equities and $9.9BN was allocated into bonds, which as BofA’s Michael Hartnett puts it, means the “YTD greed is in credit funds (inflows to IG, HY, EM debt $109bn) not stocks (outflows of $95bn).” This is summarized visually below:
Monetary policy in a world of cryptocurrencies – Pierpaolo Benigno
Cryptocurrencies have attracted the attention of consumers, policymakers and the media. This column investigates whether they can jeopardise the primary function of central banks, namely, controlling inflation and economic activity. Currency competition can succeed in calming inflation and preventing the sort of manipulation of interest rates and prices to which governments have historically been prone. But currency competition may also lead to government money losing the function of medium of exchange, which could be risky and lead government currency into further troubles.
Central Banks May be Enabling Unhealthy Corporate Buyouts – Pia Rennert, Gunther Schnabl
German pharma giant Bayer’s acquisition of Monsanto is only one prominent case of leveraged buyouts (LBOs), which have been flourishing since the 1990s (see Figure). After Bayer has paid 66 billion dollars for Monsanto, the stock value of the merged enterprise has collapsed below Bayer’s pre-merger value. Bayer faces more than 10,000 US lawsuits over cancer allegations for Monsanto’s glyphosate-based herbicides, which were foreseeable prior to the leveraged takeover. What is driving this LBO activity if not profitability?
One explanation is the conflict of interest between owners of a company and its managers. Whereas owners wish to maximize the firm value, managers want to maximize their personal income. Managerial remuneration tends to rise with firm size (Murphy 1985). If managers want to reward performance of employees through promotion rather than bonuses, firm size is relevant to having a sufficient supply of high-ranked positions (Baker, Gibbs, Holmstrom 1993). Acquisitions via LBOs are an effective way to increase the firm size, even if the deal turns out to be a loss for shareholders.
***How a Little Money Laundering Can Have a Big Impact on Real Estate Prices – Stephen Punwasi
24 april 2019
What happens when the marginal buyer is the money launderer whose goal isn’t to buy a house, but to clean the money — and the more money the better?
Money laundering in Canadian real estate is a widely accepted fact of life these days, but the impact isn’t. Government and academics are still debating how much money is needed to distort a market. The truth is, not a whole lot is required to distort any asset market. This is a problem the stock market has been dealing with since the 1920s, and the reason it’s so highly regulated.
The key to understanding how laundering impacts prices, is understanding the marginal buyer. If you understand how prices are set, it doesn’t take long to see it’s not the amount of money that’s the issue. Price distortions can be the result of capital velocity, and the intention of the marginal buyer.
Push Them Hard Enough and the Productive Class Will Opt Out of Servitude – Charles Hugh Smith
People love their big paychecks, but they also value their sanity.
One of the most astonishing manifestations of disconnected-from-reality hubris is public authorities’ sublime confidence that employers and entrepreneurs will continue starting and operating enterprises no matter how difficult and costly it becomes to keep the doors open, much less net a profit.
The average employee / state dependent reckons that the small business owner / entrepreneur is killing it financially, banking a small fortune in pure profit every month, and that they’re doing what they love so they’ll continue doing it no matter what. In other words, they’re all wealthy Tax Donkeys who can easily afford higher taxes and fees and will tolerate paying more to keep doing what they love.
Wrong on both counts–dead wrong. A far more typical response is the one a house painter emailed me last year: every day, he reported, he wanted to dump his spray rig and power washer in a dumpster and leave the U.S.
Which Of These Four Stocks Will Trigger The Market’s Jenga Moment – Bill Blain
“You’re an excellent judge of horse-flesh Trooper Tyree. You proved that when you stole my horse.”
That was an interesting week… What did we learn?
No surprise at the deepening crisis in Argentina or a comic elected president in Ukraine. Headlines this morning are about the lack of vol in currency markets, worries about Italian debt, and what did Putin promise Kim. Stock markets hit new highs as they continue to lap up any good news and discount negativity… How many column inches did Boeing get after withholding guidance due to the deepening uncertainty about the fix on the B-737 Max or the fact its received zero orders since the second crash? Almost none. Facebook’s privacy breach fine got swept under by the strong results, and the stock rocketed higher….
Traditionally Friday is my rant day….
Faraway, so close! Technology diffusion and firm heterogeneity in the medium-term cycle of advanced economies – Mónica Correa-López, Beatriz de Blas
Since the end of WWII, advanced economies have experienced long-lasting swings in economic activity. This column takes a look at the historical data and finds that, over the medium term, output and investment fluctuations among European countries have been even more volatile and persistent than in the US. It also reveals that, by diffusing embodied technology through trade inintermediates, large US firms appear to drive Europe’s output over the medium term.
If Free-Markets Still Exist, These Relationships Ain’t Good – Chris Hamilton
First, federal funds rate (yellow shaded area), 10 year minus 3 month Treasury spread (black line), new housing permits (blue line), and initial unemployment claims (red line). Shaded boxes are interest rate hiking cycles.
It is a pretty easy set of causal relationships. During each interest rate / business cycle;
Fed raises the Federal Funds Rate…
Causing the spread between short and long term lending to nearly or fully invert (shown by 10 year minus 3 month Treasury)…
The loss of profitable lending and rising rates pushes housing permits to peak and ultimately decline…
The stall or outright decline in housing creation is followed by slowing jobs creation and rising unemployment claims.
Typically this is the onset of a recession and another rate cutting cycle is set to begin.
Below, dropping out the FFR and dropping in the Wilshire 5000 (representing all publicly traded US equities, green line). Typically, permits are in decline and the party is over before equities realize everyone has already taken off.
Holcombe on Political Capitalism – David Gordon (recensie)
Political Capitalism: How Economic and Political Power is Made and Maintained. By Randall G. Holcombe. Cambridge University Press, 2018. X + 294 pages.
Randall Holcombe is best known as an economist for his work in public choice, but in this impressive new book, he adds a historical dimension to public choice by combining it with “elite theory.” In doing this, he arrives at a controversial thesis: a new economic system, “political capitalism,” has come to replace market capitalism. In arguing for his thesis, Holcombe shows a remarkable knowledge of the literature in economics, political science, and sociology.
By “political capitalism”, Holcombe means the same as what is often called “crony capitalism,” and as he notes, the concept is a well-established one. There is widespread agreement by people with different political views that the American economy is dominated by an alliance of elite business and political interests.
The Feedback Loop of Doom: When Mobile Creatives and Capital Abandon Unaffordable, Dysfunctional Cities – Charles Hugh Smith
When the 4% who generate the jobs and tax revenues have had enough and leave, the effects quickly impact the 64%.
At the end of any trend, everyone’s a true believer: this trend is so enduring, so broad-based, so based on unchanging fundamentals that it will never ever reverse.
One such trend is the white-hot growth of housing, employment, tax revenues, etc. in major urban magnets for global capital and talent: you know the usual suspects: Dallas, Atlanta, Seattle, Portland OR, Denver, Los Angeles, the San Francisco Bay Area, New York City and so on.
What these urban regions offer are strong job markets, a very desirable dynamic.
For example, over 400,000 jobs have been added to the San Francisco Bay Area in the past few years, basically an entire new city of workers. Very few states have added 400,000 jobs in the past few years, and fewer still have added so many high-wage jobs.
The synergies created by global capital, research universities, a flood of fresh talent and the entrepreneurial drive to conjure up the next IPO Unicorn have been beaten to a pulp. What hasn’t been glorified is the net result of these synergies:
The global macroeconomics of a trade war: Findings from the EAGLE model – Wilko Bolt, Kostas Mavromatis, Sweder Van Wijnbergen
Increasing protectionism will slow down world trade and may dampen global economic growth. This column examines the global macroeconomic consequences of a major trade conflict between the US and China, and shows that the two countries would be the biggest losers from a 10% ‘tit-for-tat’ trade war between them. As long as it does not get involved in the conflict, the euro area may temporally gain from trade diversion, as competitiveness improves and imports from regions whose exports are blocked elsewhere become cheaper.
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