Economische aanraders 28-08-2016
Veren of Lood biedt u op zondag wekelijks een inkijkje in (minstens) 10 belangrijke of informatieve artikelen en interviews die 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.
Sinds begin december 2015 nemen we 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.
*** Equity is cheap for large financial institutions: The international evidence – Priyank Gandhi, Hanno Lustig, Alberto Plazzi
Governments and regulators are commonly assumed to offer special protection to the stakeholders of large financial institutions during financial crises. This column measures the ex ante cost of implicit shareholder guarantees to financial institutions in crises, and suggests that such protection affects small and large financial institutions differently. The evidence suggests that in the event of a financial crisis, stock investors price in the implicit government guarantees extended to large financial institutions, but not to small ones.
New SEC Money-Market Fund Rules Forcing a Liquidity Squeeze? – Alex M., Founder of Macro Ops
On Oct. 17th new SEC rules will come into play that’ll affect money market funds and liquidity across the financial sphere.
These rules are an attempt to prevent an 08’ style crisis by controlling money market liquidity, but in reality, they may actually cause another financial crisis. The regulations say that prime and municipal money market funds (the funds invested in riskier assets than T-bills) will have to float their net asset values (NAV). They’ll also be required to impose liquidity fees and redemption gates.
The problem with these new rules is the massive shift they’re causing in the money markets. Investors are moving en masse from riskier prime funds that will be forced to abide by these new rules, to safer government funds which are exempt.
So far $500 billion has already moved from prime to government funds, and it’s expected another $500 billion will follow suite in the next few months.
This massive change in the money market landscape is leading to issues in the lending markets. And issues in the lending markets are extra dangerous because they directly affect the financial system’s liquidity.
Investor beliefs and stock market outcomes in emerging economies – Ina Simonovska, Joel David
The ‘excess co-movement puzzle’ in financial markets refers to the correlation of asset returns beyond what could be expected based on the common movements in fundamentals. Using international data, this column links excess co-movement in firm-level stock returns to the correlated beliefs of sophisticated investors. Co-movement is largely explained by investors’ reliance on common information – in other words, their lack of firm-specific information. This gives rise, in part, to the higher degree of aggregate market-wide volatility.
How Central Banks Are Bleeding the Middle Class Dry – Rodion Giniyatullin/Vincent Steinberg
The Western welfare states know many ways to get rid of their enormous sovereign debt — at great cost of their citizens. Once the debt burden becomes unbearable, the government simply reforms the currency. Then, the government debt will be “adjusted” with the private wealth of the citizens. This is when the citizens will notice that their government’s sovereign debt is their own debt.
But the government does not always need to make use of these large torture devices. More subtle ways, such as financial repression, are possible.
What Is Financial Repression?
“Financial repression” describes a set of tools with which the government can intervene in the market and keep its refinancing cost (the interest on its debt) artificially low. As a consequence, savers and investors are suffering from negative real interest rates because the nominal interest rates are below the inflation rate. The mathematical difference between the savers’ nominal interest rates and the inflation rate is the loss of wealth, the rate at which savers and investors are forced to contribute to the debt financing of their governments.
Why Behavioral Economics Is Really Marketing Science – Philip Kotler
Economists rarely mention marketing. Occasionally an article appears in the American Economic Review on advertising or promotion or warranties. But to most economists, marketing is a sideshow in the economy. It is filled with too many particulars and virtually no theory. A cynical economist would even hold that marketing activity hurts the efficiency of the economy. Promotions distort the true price and lead consumers to buy on brand name, not real value.
Ironically, the discipline of marketing was started by economists! Marketing textbooks first made their appearance in the 1900-1910 period. Their authors were economists who were institutionally oriented rather than theory-oriented. These economists wanted to examine the role that different distribution organizations – wholesalers, jobbers, agents, retailers – played in the economy. They also wanted to describe and analyze the different promotion tools – advertising, sales discounts, guarantees and warrantees—and determine whether they actually shifted demand.
Back to the future? Lessons on inequality, labour markets, and conflict from the Gilded Age, for the present – Suresh Naidu, Noam Yuchtman
Today’s labour market in the US has much in common with that of the late 19th and early 20th centuries. Then, as now, there were few government protections for workers, fears over cheap immigrant labour, rapid technological change, and increasing market concentration. This column explores the lessons that can be drawn from the earlier ‘Gilded Age’. The findings suggests that even as markets play a greater role in allocating labour, legal and political institutions will continue to shape bargaining power between firms and workers.
Our Society Is Sick, Our Economy Exploitive and our Politics Corrupt – Charles Hugh Smith
August 22, 2016
Any society that tolerates this systemic exploitation and corruption as “business as usual” is not just sick–it’s hopeless.
In noting that our society is sick, our economy exploitive and our politics corrupt, I’m not saying anything you didn’t already know. Everyone who isn’t being paid to deny the obvious in public (while fuming helplessly about the phony cheerleading in private) knows that our society is a layer-cake of pathologies, our economy little more than institutionalized racketeering and our politics a corrupt auction-house of pay-for-play, influence-peddling, money-grubbing and brazen pandering for votes.
The fantasy promoted by do-gooders and PR hacks alike is that this corrupt system can be reformed with a few minor policy tweaks. If you want a brief but thorough explanation of Why Our Status Quo Failed and Is Beyond Reform, please take a look at my book (link above).
If you want an example of how the status quo has failed and is beyond reform, it’s instructive to examine the pharmaceutical industry, which includes biotech corporations, specialty pharmaceutical firms and the global corporate giants known as Big Pharma.
***Revealed: ECB Secretly Hands Cash to Select Corporations – Don Quijones
In June, the ECB began buying the bonds of some of the most powerful companies in Europe as well as the European subsidiaries of foreign multinationals. This pushed the average yield on euro investment-grade corporate debt to 0.65%. Large quantities of highly rated corporate debt with shorter maturities are trading at negative yields, where brainwashed investors engage in the absurdity of paying for the privilege of lending money to corporations. By August 12, the ECB had handed out over €16 billion in freshly printed money in exchange for corporate bonds.
Throughout, the public was given to understand that the ECB was buying already-issued bonds trading in secondary markets. But the public has been fooled.
Now it has been revealed by The Wall Street Journal that the ECB has also secretly been buying bonds directly from companies, thus handing them directly its freshly printed money.
It has been doing so via “private placements.” These debt sales are not open to the broader market. There’s no need for a prospectus. Only a small number of institutional investors participate. It allows companies to raise cash quickly, without jumping through the normal hoops. Private placements are not unusual. What’s new is that the ECB used them to buy bonds.
45 Years Without Gold – Daniel Fernández Méndez
When World War I began, many analysts believed that the international gold standard would keep the war short. A war of attrition was not thought to be possible because the disciplining effects of the gold standard — capital flight and gold outflow — were supposed to restrain the ability of states to mobilize resources in times of war. As many believed at the time, states under the gold standard would quickly run out of money to pay for soldiers and resources. No one ever imagined that the war would last four long years and that most countries would stop using the gold standard, turning instead to debt and inflation to pay for the war.
The gold standard was never the same after World War I. It survived in a modified form until August 15, 1971 — 45 years ago this month — when President Nixon cut the last link between the world monetary system and gold. The initial idea was to temporarily suspend the limited convertibility that existed; only governments could request reimbursements of gold against dollars. Unfortunately, there is nothing more permanent than temporary emergency measures. We are still living with a 45-year-old monetary experiment in which central banks have no direct link to gold.
Bank of Japan Prepares for Crash Triggered by Fed Tightening – Wolf Richter
No central bank of a developed country equals the Bank of Japan in trying to manipulate the stock market up by buying equities. The BOJ has done this for years. With breath-taking ineffectiveness.
So on July 28, the BOJ announced another stock market pump-up scheme: it would nearly double its annual purchases of equity ETFs from about ¥3.3 trillion to ¥6 trillion ($60 billion).
Hedge funds and other speculators expected for the BOJ to instantly throw its weight around in the stock market, and hopes were riding high that the Nikkei would surge, or at least rise in a visible manner. Alas, on Friday in Tokyo, the Nikkei dropped to 16,361, down a smidgen from where it had been on July 28.
Micro vs. Macro – John H. Cochrane
The cause of sclerotic growth is the major economic policy question of our time. The three big explanations are 1) We ran out of ideas (Gordon); 2) Deficient “demand,” remediable by more fiscal stimulus (Summers, say) 3); Death by a thousand cuts of cronyist regulation and legal economic interference.
On the latter, we mostly have stories and some estimates for individual markets, not easy-to-use government-provided statistics. But there are lots of stories.
Reality Gets in the Way: The Trouble with Demand Curves – Frank Shostak
One of the few things economists agree on is that prices are determined by supply and demand. This is summarized by means of supply and demand curves, which describe the relationship between the prices and the quantity of goods supplied and demanded.
Within the framework of supply-demand curves an increase in the price of a good is associated with a fall in the quantity demanded and an increase in the quantity supplied. Conversely, a decline in the price of a good is associated with an increase in the quantity demanded and in a decline in the quantity supplied. In short, the law of supply is depicted by an upward-sloping curve while the law of demand is presented by a downward-sloping curve.
The equilibrium price is established at the point where the two curves intersect. At this point, the quantity supplied and the quantity demanded is equal — at the equilibrium price the market is said to “clear.”
*** World Trade Falls for Second Quarter in a Row – Wolf Richter
Adding to the picture of crummy demand for goods around the world, the CPB Netherlands Bureau for Economic Policy Analysis, a division of the Ministry of Economic Affairs, just released its preliminary data of its Merchandise World Trade Monitor for June.
Trade volumes rose 0.7% in June from May, after falling 0.5% in May, but were about flat year-over-year, and below the volumes of December 2014!
On a quarterly basis – it averages out the monthly ups and downs – world trade fell 0.8%, contracting for the second quarter in a row.
China’s Great Divide: A New Cultural Revolution? – Charles Hugh Smith
The only question left for China (and every other debt/bubble-dependent nation) is what socio-political consequences will manifest when the credit bubble finally bursts?
In Asia, it’s generally seen as unpatriotic to criticize one’s country in public, even if you disagree with its direction and leadership. The cultural norm is to maintain the “face” of one’s country by hiding its ills from outsiders.
This reticence is especially evident in China, which suffers from the memory of being subjugated by the Western imperialist powers in the late 19th century and early 20th century.
As a general rule, you will rarely hear any profound criticism of China unless you are considered a trusted friend; giving China a black eye in public is frowned upon, even by its domestic critics.
For this reason, the majority of the Western media has very little grasp of what worries Chinese people. Recently, I have heard fears of a Second Cultural Revolution being expressed in private.
There is a Great Divide between generations in China: on the one side is the older generation that remembers the Maoist era with some nostalgia and the terrible adversities of the Cultural Revolution (1966 – 1976). On the other side is the young educated, prosperous generation which has only known consumerist prosperity and personal advancement.
The hidden productivity benefits of energy-saving technology: Evidence from LEDs in Indian factories – Achyuta Adhvaryu, Namrata Kala, Anant Nyshadham
Energy-efficient technologies are an increasingly relevant policy priority, given growing consensus on the need to tackle climate change. This column examines the productivity benefits of adopting one such technology – LED lighting – for manufacturing firms in India. It finds that improved productivity resulting from LED lighting’s lower heat emissions makes adopting such technology far less costly than previous anticipated, particularly for labour-intensive firms in hot climates.
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 zomin als privé.