Economische aanraders 29-03-2020
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.
Governments Can’t Fix This Economic Crisis They Caused – Daniel Lacalle
Before analyzing the emergency plans that the global economy needs, we must remember that, as in the past, the prudence and responsibility of the civil society and businesses will help us to get out of this crisis .
In the face of an unprecedented crisis, we have to be realistic, responsible and cautious.
This is a supply shock added to a mandatory shutdown of the economy. As such, a serious response must be supply-side driven. It is ludicrous to try to stimulate demand with printed money and public spending in a forced lockdown where any extra demand will not drive supply up, even may drive it down.
A mandatory shutdown due to a supply shock is not solved with government spending or demand-side measures. Printing money and lowering rates help the already indebted and governments with already historic-low bond yields, deficits are already going to soar due to automatic stabilizers.
The coronavirus shock to financial stability – Enrico Perotti
Years of quantitative easing by the ECB have suppressed sovereign yields to historic lows. This has contributed to a shadow banking boom, as market participants invested heavily in various private asset constructions. This column argues that the coronavirus shock poses a serious liquidity risk for the shadow banking sector, where significant funding has been extended on the basis of cash flow rather than real collateral. Avoiding financial panic is key, and will require liquidity support as well as targeted fiscal measures.
Destroying the Economy is not a Social Policy – Daniel Lacalle
The economy is the heart of the social body. If we shut down the heart of an organism to safeguard the hands and brain, the body dies.
The data on deaths and infected from the Covid-19 coronavirus epidemic is alarming. Let us remember the deceased, the infected and their families, and applaud the response of civil society, businesses, and citizens.
“Cost Cutting” Is Necessary to Expand Real Investment – Frank Shostak
Some commentators regard cost cutting by companies in order to secure profits as a major threat to the economy. They hold that if everyone tries to cut costs and save more, demand for goods and services from retrenched workers will fall, which in turn will hurt corporate revenues and thus profits. This allegedly sets in motion new layoffs and again eats into revenues and makes profits disappear. The process supposedly continues until there are not enough workers and salaries left to generate sales and profits.
Share Buybacks Are Toast for 2020: Oops, that was the $4.6 Trillion Driver of the Stock-Market-Bubble – Wolf Richter
Even after the bottom is perceived to be in, “buybacks may be slow to come back” as companies struggle for cash amid potential government restrictions on buybacks and their dismal public image: S&P Dow Jones Indices.
Share buybacks by companies in the S&P 500 Index in the fourth quarter 2019, before the Coronavirus was even a factor, fell 18% from a year earlier, to $181.6 billion, after falling 13% and 14% year-over-year in the prior two quarters, from the blistering tax-cut records set in 2018, according to S&P Dow Jones Indices today. For the full year, buybacks fell 9.6% from the tax-cut record in 2018, to $729 billion in 2019, the second highest annual total ever.
Fault lines in fiscal-monetary policy coordination – Lucrezia Reichlin, Dirk Schoenmaker
Fiscal and monetary policy coordination is not working in the euro area. This column argues that in order to rebalance the weight of both during major crises, the asymmetry between decision making at the ECB (by majority voting) and the ESM (by unanimity or qualified majority) must be harmonised. This is urgent since the ESM is the only instrument available to provide the common fiscal capacity needed to fight the COVID-19 pandemic.
Central Bankers Are Running Out of Options – Joakim Book
Corona fears have shifted the world’s central banks into hyperdrive. Talk more, do more, lend more—and buy everything that moves. One after the other, the major central banks took to the barricades, manned the canons, fired their bazookas, and every other military metaphor you can think of.
Nobody stopped to think whether the policies that they quickly and loudly announced would work. Nobody investigated whether they could be prevented from reaching their increasingly desperate creators’ desired recipients—nevermind the much bigger questions of whether these goals are desirable or whether central banks ought to do what they’re doing in the first place. “What if,” asked nobody at any central bank during the last few chaotic weeks, “some crucial stage of our lengthy stimulus chains won’t operate the way we planned?”
Fictional Reserve Lending Is the New Official Policy – Mike Shedlock
Official policy finally caught up with reality. Reserves are fictional.
With little fanfare or media coverage, the Fed made this Announcement on Reserves.
As announced on March 15, 2020, the Board reduced reserve requirement ratios to zero percent effective March 26, 2020. This action eliminated reserve requirements for all depository institutions.
Amusingly, a few days ago yet another article appeared explaining how the Money Multiplier works. The example goes like this: Someone deposits $10,000 and a bank lends out $9,000 and then the $9,000 gets redeposited and 90% of the gets lent out and so an and so forth.
The notion was potty. That is not remotely close to how loans get made. Deposits and reserves never played into lending decisions.
What’s Changed Regarding Lending?
The announcement just officially admitted the denominator on reserves for lending is zero.
There are no reserve lending constraints (but practically speaking, there never were).
Future imperfect after coronavirus – Charles Goodhart, Manoj Pradhan
The authorities, like most of the rest of us, have been caught short by the sudden advent of the coronavirus pandemic, and are rightly rushing to limit unnecessary deaths. But in doing so, they are imposing a massive supply shock. This column asks what will happen when the lockdown gets lifted and recovery ensues, following this period of massive fiscal and monetary expansion. It argues that we will see a surge in inflation that can only be tackled once indebtedness has been restored to viable levels.
COVID-19 Is Forcing The World To Re-Think The Idea Of “Monetary Value” – Matthew Ehret
Western society has long been gripped by a deep seeded belief in money. Trillions of dollars of bank notes tied to ever-growing mountains of un-payable national debts has taken on a life of its own over the years. As the post-1971 years rolled by, society increasingly lost a sense that this human invention called “money” was created to serve humanity rather than rule it, and with that lost sense, money became an idol of worship.
Decades of this modern religion have resulted in an incredibly tragic situation: a disproportionate wealth distribution in the hands of the 0.1%, an over-bloated services/consumer driven economy, increased rates of poverty and despair internationally as well as a dismal loss of vital skills, and productive capacity once enjoyed by advanced industrial nations just four decades ago. Vital infrastructure built up during the 1930s-1960s has been permitted to decay through simple neglect while un-payable debts have reached record highs.
Latin America Was Already Steeped in Economic Problems. Now Come the External & Internal Shocks of COVID-19 – Nick Corbishley
Not even Brazil and Mexico have the fiscal and monetary leeway to offset those shocks.
Covid-19 is beginning to gain a foothold in Latin America. Even in some of the region’s tropical areas, the case numbers are rising at a startling rate. Ecuador, which appears to have caught the bug a month ago as a result of its close connections with Spain, now has over 1,300 cases — more than any other country in the region except for Brazil, which has over 12 times Ecuador’s population.
COVID-19: The economic policy response – Ethan Ilzetzki
The economic damage from the COVID-19 pandemic is already tangible. In response, fiscal and monetary policies have been introduced by many major economies. This column discusses results from a latest Centre for Macroeconomics survey on the policies best suited for dealing with the economic crisis in the UK. Broad consensus exists on the need to support households and businesses, through unemployment benefits, credit support, and direct transfers. Likewise, a substantial share of economists agree that higher public debt burdens should not be a concern in the process of supporting the economy.
The New Euro Stimulus Won’t Save the Greek Economy – Antonis Giannakopoulos
With fear of the coronavirus continuing to wreak havoc on every country in the West, almost all governments have taken radical measures for containment of the virus: mandatory quarantines for many, the closing of businesses, and the prohibition of many economic and social activities. I am not going to pretend that I am a medical expert and share my thoughts about how serious the virus really is. I will, however, focus on its economic consequences.
(Two very informative articles on healthcare policies for the virus are “Government Is No Match for the Coronavirus” and “The ‘Bootleggers and Baptists’ of the Coronavirus Crisis.”)
***Managing economic lockdowns in an epidemic – Emanuel Ornelas
Countries worldwide are implementing lockdown measures to contain the COVID-19 pandemic. Very soon, the question will be how to lift the lockdowns while keeping the epidemic in check. This column uses basic economic principles to shed light on the key trade-offs. A central message is that there is no ‘health versus economics’ dichotomy. Rather, some degree of lockdown is typically optimal in a crisis like this, balancing economic costs against health benefits. Moreover, the optimal level of lockdown is dynamic, changing over time and eventually becoming more lenient.
“Not All Airlines Will Go Bankrupt”: How Will Coronavirus Travel-Bans Impact Airbus, Suppliers, and Airlines? – MC01
All eyes are on China to see how air transport will change in the aftermath of the crisis.
Airbus CEO Guillaume Fleury and CFO Dominik Adam issued a joint statement on March 23, regarding the European aerospace giant’s plan to power through the Covid-19 crisis. These new provisions include a new €15 billion credit facility, cancelling the proposed €1.80 per share dividend, and “cutting operational costs where possible.”
This gave Airbus €30 billion in liquidity to burn through. While Messrs. Fleury and Adam seem confident Airbus will not need a government bailout, they stressed the rest of the environment will need as much help as possible to get through the crisis.
Helicopter Money: Short-Term Relief Won’t Cure our Financial Disease – Charles Hugh Smith
The collateral supporting the global mountain of debt is crumbling as speculative bubbles deflate.
A great many freebies are being tossed in the Helicopter Money basket. That households experiencing declines in income need immediate support is obvious, as is the need to throw credit lifelines to small businesses. But beyond those essentials, the open-ended nature of Helicopter Money has unleashed a frenzy of political favors and giveaways that have little to do with helping households and everything to do with rewarding favored cronies, cartels and interest groups.
As Gordon Long and I explain, the short-term “pain relief” of Helicopter Money won’t cure the economy’s financial disease; rather, it will act as a catalyst for longer-term disruption and decline.
<strong***Group testing – JohnH. Cochrane
Christian Gollier and Olivier Gossner pass on a beautiful and simple idea: Group testing. It’s also known as test pooling.)
To stop the virus, we need testing. But we don’t have enough tests. As a result, a trillion dollars a month stands to go down the toilet, unemployment is skyrocketing, and a big financial crisis looms. What to do?
Test groups. Group testing works particularly well given that so far, the percentage of infected people is low.
Get a group of 32 people, and they each spit in a bucket. Test the bucket. (Metaphorically. Actually, the samples are swabs, and we mix parts of the samples.) If it’s negative, everyone in the group is clean and they can go back to work.
If not, split the samples into two groups of 16, and test again. Again, if a group of 16 is negative, they’re all clear. Keep going 8, 4, 2, 1. (You don’t get new samples, of course. You take the original samples and split them apart, and test them again.)
If nobody has it, you find out in 1 test, not 32. If 1 out of the 32 has it, you find him or her with 12 tests not 32.
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