Economische aanraders 31-01-2016
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 zijn.
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.
China’s slowdown and the Chinese stock market – Jeffrey Frankel
The Shanghai Stock Exchange Composite Index has dropped substantially in the past few months. China’s growth rate has also slowed. This column argues that the slowdown of the Chinese economy has little to do with the stock exchange, and is mostly due to economic forces. The author recommends a package of policies that need to be implemented to smooth the transition to a sustainable growth rate.
Brazil’s Easy-Money Problem – Lucas Vaz
Brazil is undergoing what is considered its worst economic crisis in seventy years, and there is usually no agreement when it comes to the causes of this situation. President Rousseff and the Labor Party say that it was the corollary of the “International Crisis,” a ghost of the 2008 depression created in their minds. The reality, however, is different. Since ex-president Lula Da Silva of the Labor Party entered office in 2003, the government has clung to the typical Keynesian project of growth-by-government-spending. Interest rates were lowered constantly, the amount of loans grew to an unprecedented level, savings per capita dropped, and government spending continued to grow.
China’s capital flight and US monetary policy – Yin-Wong Cheung , Sven Steinkamp, Frank Westermann
Since the beginning of the Global Crisis, illicit capital flows out of China have been in decline. This column argues that a key factor behind this is the relative money supply between China and the US. China’s rapidly increasing money supply, combined with the Fed’s expansionary monetary policy, prompted investors to reallocate their portfolios between the two countries. Another contributing factor is China’s gradual process of capital account liberalisation. The Fed’s interest rate hike in December may see a resurgence in China’s capital flight.
A “Death Spiral” for the Chinese Yuan? – Wolf Richter
The “impossible trinity.”
The authorities in China are in a desperate juggling act, trying to keep a growing number of rotting oranges, porcelain plates, burning torches, and explosives in the air all at the same time. But it’s not working very well anymore.
Thursday morning, the People’s Bank of China injected 340 billion yuan ($51.9 billion) into commercial banks via reverse repurchase agreements, after having already injected 440 billion yuan on Tuesday. As 190 million yuan of prior reverse repurchase agreements – a type of short-term loan – have matured, the net injection of cash this week amounted to 590 billion yuan, or $89.7 billion, the most, according to the Wall Street Journal, since February 2013.
This is Why Junk Bonds Will Sink Stocks: Moody’s – Wolf Richter
“Some very critical things are hidden.”
After the white-knuckle sell-off of global equities that was finally punctuated by a rally late last week, everyone wants to know: Was this the bottom for stocks? And now Moody’s weighs in with an unwelcome warning.
If you want to know where equities are going, look at junk bonds, it says. Specifically, look at the spread in yield between junk bonds and Treasuries. That spread has been widening sharply. And look at the Expected Default Frequency (EDF), a measure of the probability that a company will default over the next 12 months. It has been soaring.
The Illusion of Safety: Index Funds Are Not Low-Risk – Charles Hugh Smith
If the risk-on euphoria of punters borrowing billions of dollars in margin debt doesn’t materialize, stocks could languish for years after falling 50%.
The financial service industry’s Prime Directive is to exploit humanity’s core drives of Greed and Fear. Financial service companies promise high returns (fulfilling our greed) that are low-risk, i.e. “safe” (placating our fear of losing our nest-egg).
But the safety of many supposedly low-risk investments is illusory. The risk is not actually near-zero; rather, the risk has been buried, masked or obscured, for the obvious purpose of persuading the marks (i.e. the investing public, non-financial institutions, etc.) that the promised gains are essentially risk-free.
Networks and macroeconomic shocks – Daron Acemoglu, Ufuk Akcigit, William Kerr
How shocks reverberate throughout the economy has been a central question in macroeconomics. This column suggests that input-output linkages can play an important role in this issue. Supply-side (productivity) shocks impact the industry itself and those consuming its goods, while a demand-side shock affects the industry and its suppliers. The authors also find that the initial impact of an industry shock can be substantially amplified due to input-output linkages.
“Great and mighty things which thou knowest not” [?] – Perry Mehrling
In his recent paper, “A Lost Century in Economics: Three Theories of banking and the conclusive evidence”, Richard Werner argues that the old “credit creation theory” of money is true (empirically “accurate”), while both the newer “fractional reserve theory” and the presently dominant “debt intermediation theory” are false. For him, this matters mainly because the false theories are guiding current bank regulation and development policy, leading down a blind alley.
But it matters also simply because we need correct understanding of how the economy actually works, “we” meaning not just economists but also the general public. “Today, the vast majority of the public is not aware that the money supply is created by banks, that banks do not lend money, and that each bank creates new money.”
*** Following BEPS #7. Brussel, 28 januari: Vergaande voorstellen tegen belastingontwijking – Christiaan Vos
Christiaan Vos volgt voor Follow the Money het BEPS-project van de G20 en de OESO, tegen agressieve belastingplanning door multinationals. Wat is agressieve belastingplanning eigenlijk en waarom moet het aangepakt? Vos observeert wat bedrijven en politici doen en analyseert de gevolgen. Leidt het BEPS-project tot een betere wereld?
Vandaag: de EU loopt voor de internationale troepen uit met vergaande voorstellen tegen belastingontwijking. Dat is mooi. Of scoren we nu in eigen doel?
Are Government Regulators More Virtuous than Everyone Else? – Iván Carrino
In their new book, Phishing for Phools, Nobel-prize winning economists George Akerlof and Robert Shiller use a behavioral economics approach to criticize the “manipulation and deception” that can exist between businesses and consumers.
No one denies that sometimes we do things we later regret. Most of us once bought something that we later regretted spending money on.
However, the fact that these errors in judgment may occur — on the part of the consumers — is not evidence that businesses attempt to sell products that customers do not want.
Announcing the Bank Whistleblowers United Initial Initiatives – William K. Black
I am writing to announce the formation of a new pro bono group and a policy initiative that we hope many of our readers will support and help publicize. Gary Aguirre, Bill Black, Richard Bowen, and Michael Winston are the founding members of the Bank Whistleblowers United. We are all from the general field of finance and we are all whistleblowers who are unemployable in finance and financial regulation because we spoke truth to power and committed the one unforgivable sin in finance and in Washington, D.C. – being repeatedly proved correct when the powerful are repeatedly proved wrong.
*** Already Lousy Corporate Investment Comes Totally Unglued – Wolf Richter
A toxic cocktail.
American corporations borrowed more in the years following the Financial Crisis than ever before. Debt was dirt-cheap even for the riskiest borrowers, and they went out and sold bonds and borrowed from banks, and blew the proceeds on funding operating losses, buy each other out in a record-breaking wave of M&A, and buy back their own shares. And not enough went into productive investments that would help their businesses grow and thrive.
This has been one of the reasons the economic recovery has been so crummy. Business investment is crucial, and there just wasn’t enough. And now it’s getting even worse.
World faces wave of epic debt defaults, fears central bank veteran – Ambrose Evans-Pritchard
The global financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability, a leading monetary theorist has warned.
“The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up,” said William White, the Swiss-based chairman of the OECD’s review committee and former chief economist of the Bank for International Settlements (BIS).
“Pandora’s Box Is Open”: Why Japan May Have Started A ‘Silent Bank Run’ – Tyler Durden
As extensively discussed yesterday in the aftermath of the BOJ’s stunning decision to cut rates to negative for the first time in history (a decision which it appears was taken due to Davos peer pressure, a desire to prop up stock markets and to punish Yen longs, and an inability to further boost QE), there will be consequences – some good, mostly bad.
As Goldman’s Naohiko Baba previously explained, NIRP in Japan will not actually boost the economy: “we do have concerns about the policy transmission channel. Policy Board Member Koji Ishida, who voted against the new measures, said that “a further decline in JGB yields would not have significantly positive effects on economy activity.” We concur with this sentiment, particularly for capex. The key determinants of capex in Japan are the expected growth rate and uncertainty about the future as seen by corporate management according to our analysis, while the impact of real long-term rates has weakened markedly in recent years.”
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.