Economische aanraders 31-03-2019
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.
Can the EU Survive the Next Financial Crisis? – Alasdair Macleod
Despite the ECB’s subsidy of the Eurozone’s banking system, it remains in a sleepwalking state similar to the non-financial, non-crony-capitalist zombified economy. Gone are the heady days of investment banking. There is now a legacy of derivatives and regulators’ fines. Technology has made the over-extended branch network, typical of a European retail bank, a costly white elephant. The market for emptying bank buildings in the towns and villages throughout Europe must be dire, a source of under-provisioned losses. On top of this, the ECB’s interest rate policy has led to lending margins becoming paper-thin.
A negative deposit rate of 0.4% at the ECB has led to negative wholesale (Euribor) money market rates along the yield curve to at least 12 months. This has allowed French banks, for example, to fund Italian government bond positions, stripping out 33 basis points on a “riskless” one-year bond. It’s the peak of collapsed lending margins when even the hare-brained can see the risk is greater than the reward, whatever the regulator says. The entire yield curve is considerably lower than Italian risk implies it should be, given its existing debt obligations, with 10-year Italian government bonds yielding only 2.55%. That’s less than equivalent US Treasuries, the global risk-free standard.
***Disruption and credit markets – Bo Becker, Victoria Ivashina
In the past 30 years, defaults on corporate bonds in the US have been substantially above the historical average. Using firm-level data, this column shows that the increase in credit risk can be largely attributed to an increase in the rate at which new and fast-growing firms displace incumbents, a phenomenon defined as ‘disruption’. Incumbent revenue growth suffers when there are many IPOs in an industry, and newly issued bonds in high-disruption industries have higher yields.
Hello Jerome Powell, We Have Questions – Mike Shedlock
This is an open letter to Jerome Powell and the Fed.
Dear Mr. Powell,
In your March 8 speech on Normalization and the Road Ahead, you spoke of diversity, zero-bound interest rate problem, and the Fed’s path to normalization.
You noted “Makeup strategies are probably the most prominent idea and deserve serious attention,” while simultaneously admitting an “uncertain distance between models and reality”.
With that admission, you raised far more questions that you answered.
Here is a series of questions from your speech to which the American public deserves answers.
Operating Procedures – John H, Cochrane
The Fed sets interests rates. But how does the Fed set interest rates? The Fed is undergoing a big review of this question. We had a little workshop at Hoover, in preparation for the larger May 3 Strategies for Monetary Policy conference, which provokes the following thoughts.
Here is the issue.
The graph plots the demand for reserves, as a function of the interest rate on other short-term assets such as overnight federal funds, Libor, money market rates, and so on.
(Reserves are accounts that banks have at the Fed. The Fed sets the interest rates on such accounts.)
The lower horizontal line is the rate the Fed pays on reserves.
Yield-Curve Spaghetti: Weird Sag in the Middle May Dish up Surprises – Wolf Richter
The next recession, when it finally occurs, may be a different animal altogether.
On Tuesday at the close of the market, the yield curve sagged further in the middle like a limp noodle, with these characteristics:
At the short end, the 1-month yield rose to 2.46%, near the top of its recent range, and near the upper end of the Fed’s target range for the federal funds rate (2.5%).
In the middle, the 3-year and 5-year yields both dipped to 2.18%, respectively the lowest since Jan. 2018 and Dec. 2017
At the long end, the 10-year yield dipped to 2.41%, lowest since Dec 29, 2017, below the 1-year yield and shorter maturities; but it remained above the sag in the middle, including the 2-year yield, which also dropped.
At the far end, the 30-year yield dipped to 2.86%, the lowest since Jan 2018, but remained above all the rest.
***Disclosure and subsequent innovation: Evidence from the Patent Depository Library programme – Jeffrey L. Furman, Markus Nagler, Martin Watzinger
It is a concern amongst policymakers that the disclosure component of patents is insufficient in stimulating subsequent innovation. Using evidence on patent trends around Patent Depository Libraries in the US, this column shows that the availability of information on prior art positively impacts innovation in the field. In the pre-internet era, these libraries helped reduce geographical barriers to knowledge diffusion.
Jacobin’s Planned Economy: Mises vs. Hayek – C.Jay Engel
In a recent editorial at Jacobin Magazine, it is argued that a “planned economy can actually work.” They start with something I have written about at least a dozen times recently: the definition of socialism. Let me not mince words: our ability to argue against the rising left’s socialism is going to depend on what exactly is being argued. If they endorse traditional Marxist socialism, which has as its definition, “public ownership of the means of production,” then we get to use, of course, Mises’ socialist calculation argument.
The impact of within-group conflict on trust and trustworthiness – Alison Booth, Xin Meng
The literature examining the effect of conflict on trust and trustworthiness has reached contradictory conclusions. This column studies the long-term behavioural impact of the Cultural Revolution in China, which was a major in-group conflict. It finds that the children and grandchildren of those who were mentally or physically abused during the Revolution are less trusting, less trustworthy, and less likely to be competitively inclined relative to peers whose parents/grandparents experienced the Cultural Revolution but were not directly mistreated.
Central Bank Independence – John H. Cochrane
I’m on a panel at the “ECB and its watchers” conference Wednesday, to discuss central bank independence. Here are my comments. Yes, there is a lot more to say, but I get exactly 15 minutes. I hope I’m not scurrying back tomorrow to retract something stupid here.
Central Bank Independence
John H. Cochrane
Hoover Institution, Stanford University
Remarks presented at the “ECB And its Watchers” conference, March 27 2019.
I believe central bank independence is a good thing, and that it is in increasing danger. I don’t think that’s a controversial view, or we would not be here.
I sense that our mission today is to decry politicians that wish to influence the central banks’ good works, especially by pressing for low interest rates.
But I’ll argue instead that much of the threat to central bank independence stems ultimately from how central banks are behaving, and has little to do with interest rates.
Hyperinflation is Becoming Common in The 21st Century – Alex Deluce
How destructive is hyperinflation? To quote economist Thomas Sowell, “Hyperinflation can take virtually your entire life’s savings, without the government having to bother raising the official tax rate at all.”
A number of countries are currently experiencing the destructive effects of hyperinflation.
With the Venezuelan Bolivar at above 2,000,000 percent inflation, buying anything, even if something should be available, is virtually impossible. At towns along the Columbian border, food and medicine are bought with dollars or pesos. The Bolivar has simply lost any kind of value.
Foreign currency has become a critical means of survival in Venezuela. More than 40,000 Venezuelans, desperate for work and food, cross the border to Columbia each day. If they find work, they are paid in pesos. Should food be available, that, too, is purchased with pesos. Bolivars have become almost irrelevant to many Venezuelans. Most other currencies are eagerly accepted.
Consumers Revert to “Normal” Range, after Red-Hot mid-2018 – Wolf Richter
Personal income sets record. Bond market bet on inflation may get challenged.
Everyone – well, not quite everyone – is sitting on the edge of their chair wanting to know how the economy did in the first quarter. This edge-sitting has been complicated by the government shutdown which impacted the timing (delays) and perhaps the quality of the data (as seen by the sharp month-to-month zigzags).
So today, the Bureau of Economic Analysis released on schedule its February personal income figures; and behind schedule, it finally released consumer spending data for January, but February spending data is still delayed. For the economy, consumer spending is a biggie. So at least we have January now, because December had been an outlier in terms of being lousy, after a strong October and November.
Action, Time, and the Market – Jeffrey M. Herbener
The wellspring of all economic theory is the reality of the human condition. As a finite being, man makes a distinction between ends and means. He cannot attain his ends by an act of will alone, but must apply means to attain his ends. Man lives in an orderly but finite world. Using means produces only limited effects in attaining ends. Endowed with reason, man is able to perceive the causal connection between the use of means and the attainment of ends. Any action toward the attainment of an end requires surrendering the attainment of another end with the same means. And any action using a set of means requires foregoing using another set of means to attain the same end. Action, therefore, requires choice.
The True Size Of The U.S. National Debt, Including Unfunded Liabilities, Is 222 Trillion Dollars – Michael Snyder
The United States is on a path to financial ruin, and everyone can see what is happening, but nobody can seem to come up with a way to stop it. According to the U.S. Treasury, the federal government is currently 22 trillion dollars in debt, and that represents the single largest debt in the history of the planet. Over the past decade, we have been adding to that debt at a rate of about 1.1 trillion dollars a year, and we will add more than a trillion dollars to that total once again this year. But when you add in our unfunded liabilities, our long-term financial outlook as a nation looks downright apocalyptic. According to Boston University economics professor Laurence Kotlikoff, the U.S. is currently facing 200 trillion dollars in unfunded liabilities, and when you add that number to our 22 trillion dollar debt, you get a grand total of 222 trillion dollars.
Is the World Becoming Wealthier or Poorer? – Charles Hugh Smith
There is nothing intrinsically profitable about either robotics or AI.
At the request of colleague/author Douglas Rushkoff (his latest book is Team Human), I’m publishing last week’s Musings Report, which was distributed only to subscribers and patrons of the site.)
The core assumption of Universal Basic Income (UBI) and other plans to redistribute wealth and income more broadly is that the world is becoming wealthier, and so the pool of income and wealth that can be taxed is always expanding.
This pool of available wealth and income is so vast, we’re assured, that taxing the super-wealthy will not really dent their wealth or the economy as a whole.
A Terrible Market Combination Has Emerged That Suggests It Is Indeed All Over Now – Russell Napier
What a three weeks it has been, particularly in bond markets where, ten years after the launch of QE, the prospect of deflation is priced as a clear and present danger!
The good news is that we know what is coming next. The bad news is that we know what is coming next. The current war on deflation, a war lost if the shift in bond yields is to be believed, is bringing forth from the authorities not a new tactic but a whole new strategy – financial repression. So, is the financial repression, now renamed modern monetary theory/makeup strategy/nominal GDP targeting, imminent as bond yields in New Zealand and Australia reach all-time lows and the ten-year bond yields of both Japan and Germany return to zero?
Human beings are not naturally proactive and in groups they become less so. In groups trained to believe the same things, say for instance at economics faculties in the world’s finest universities, proactivity does not often extend beyond trying to get to the front of the lunch queue.
Worst-case deadweight loss: Theory and disturbing real-world implications – Michael Kremer, Christopher Snyder, Albert Chen
The deadweight loss from a monopolist’s not producing at all can be much greater than from charging too high a price. The column argues that the potential for this sort of deadweight loss is greatest when the market demand curve has a particular (Zipf) shape. Calibrations based on the world distribution of income generate this shape, with disturbing consequences for potential deadweight loss in global markets.
The Politics Of Inflation – Joseph Carson
Inflation has often been involved in political controversy, but today the pendulum has swung from politicians to monetary policymakers. Politicians used the controversy over high inflation to force change in its measurement. Monetary policymakers are using the controversy over low inflation to force change in its policy guidance.
As monetary policymakers have become enmeshed in the politics of the numbers it is important to understand how the politics of inflation has shaped its measurement. Inflation for politicians is to be as low as possible, while inflation for policymakers is to be as accurate as possible. Those two are not always the same, and policymakers mistook it to be true during the housing boom and failed to recognize market price signals. Are policymakers risking making the same mistake again?
What the Heck’s Going on in China’s Video-Game Market, the Largest in the World? – Adam Williams
The Dragon in the Game Room has a situation.
The opening of mainland China’s video game market to the world, combined with the rapid adoption of smartphones in China, has helped drive the extraordinary rise in global video game sales of the last decade. China’s gaming-industry revenue soared tenfold from 2008 through 2017. In 2018, China’s 620 million video game players spent about $38 billion on video games, or about 28% of the global market and half the global mobile market, which made China the largest video game market in the world, ahead of the US at $30 billion; and it helped make video games the largest form of entertainment in the world, with $138 billion in revenues, ahead of TV (see our chart of the global growth of video games by category).
Monetary policy, macroprudential policy, and financial stability – David Martinez-Miera, Rafael Repullo
Various factors have been advanced as possible causes of the build-up of risks leading to the Global Crisis, and multiple policies have been put forward to address them. This column discusses the effectiveness of monetary policy and macroprudential policy in responding to the build-up of risks in the financial sector. While both policies are useful, macroprudential policy is more effective in terms of financial stability and can lead to higher welfare gains.
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.
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