Economische aanraders 31-12-2017
Economische aanraders: 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 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.
The Inescapable Reason Why the Financial System Will FailCredit cannot expand faster than fundamentals forever – Charles Hugh Smith
29 decemberModern finance has many complex moving parts, and this complexity masks its inner simplicity.
Let’s break down the core dynamics of the current financial system.
The Core Dynamic of the “Recovery” and Asset Bubbles: Credit
Credit is the foundation of the current financial system, for credit enables consumers to bring consumption forward, that is, buy more stuff today than they could buy with the cash they have on hand, in exchange for promising to pay principal and interest with their future income.
Credit also enables speculators to buy more assets than they otherwise could were they limited to cash on hand.
Buying goods, services and assets with credit appears to be a good thing: consumers get to enjoy more stuff without having to scrimp and save up income, and investors/speculators can reap more income from owning more assets.
But all goods/services and assets are not equal, and all credit is not equal.
***Have Financial Stability Proposals Been Implemented Properly? – Philip Arestis, Malcolm Sawyer
Many countries have developed policies to address financial stability since the Global Financial Crisis (GFC) and the Great Recession (GR). How far these policies have been fully implemented and how far those policies can contribute to avoiding the next financial crisis, or mitigating its effects, are interesting questions.
The focus of policies to ensure financial stability should be on proper regulation of the financial sector. Proposals that aim to ensure financial stability have been put forward and we briefly comment on them. The main proposals are the US Dodd-Frank Act, the UK Vickers Report, the European Liikanen Report, the IMF Report, and the Basle III Report.
The Yield Curve Accordion Theory – Hal Snarr
The yield curve (a plot of interest rates versus the maturities of securities of equal credit quality) is a handy economic and investment tool. It generally slopes upward because investors expect higher returns when their money is tied up for long periods. When the economy is growing robustly, it tends to steepen as more firms break ground on long-term investment projects. For example, firms may decide to build new factories when the economy is rosy. Since these projects take years to complete, firms issue long-term bonds to finance the construction. This increases the supply of long-term bonds along downward-sloping demand, which pushes long-term bond prices down and yields up. The black dots along the black line in the figure below gives the 2004 yield curve. It slopes upward because a robust recovery was underway.
The Dreaded “Flattening Yield Curve” Meets QE Unwind – Wolf Richter
During prior incidents of an “inverted” yield curve, the Fed had no tools to get the market to push up long-term yields. Today it has one: the QE Unwind.
The price of three-month Treasury securities fell and the yield — which moves in the opposite direction — rose, ending the year at 1.39%, after having spiked to 1.47% on December 26, the highest since September 12, 2008. This is in the upper half of the Fed’s new target range for the federal funds rate (1.25% to 1.50%). Back in October 2015, the yield was still at 0%:
The Fed is tightening, and clearly, this end of the Treasury market believes it.
The Fiscal Theory of Monetary Policy – John H. Cochrane
“Stepping on a Rake: the Fiscal Theory of Monetary Policy” is new paper, just published in the European Economic Review. This link gets you free access, but just for the next few days. After that, I can only post the last manuscript. (I held off sending this hoping the EER would fix the figure placement in the html version, but that didn’t happen.)
***What will cause the next recession? – Daniel Lacalle
The most recent consensus estimates for global Gross Domestic Product growth show a healthy “synchronised” development in most economies. Expectations for the major economies are much stronger than what economists expected at the end of 2016 for the next three years. Seems all concerns about a global slowdown and subsequent recession have disappeared. What has changed?
Goldman Answers The 10 Most-Important Questions For 2018 – Tyler Durden
In their last economics report of the year Goldman Sachs’ Jan Hatzius and his team discuss what they believe are the most important questions for 2018.
US growth has accelerated substantially since early 2016, largely because of a much more positive impulse from financial conditions. Although the acceleration is likely behind us, growth should remain well above trend in 2018. Current momentum is strong, financial conditions have eased further in recent months, and fiscal policy should provide support via tax cuts and hurricane-related spending.
The labor market is moving beyond full employment, and we expect the unemployment rate to fall to 3½% by the end of 2018. If so, both wage growth and price inflation are likely to move higher, although we do not expect the core PCE to reach the 2% target until 2019.
We expect the Federal Reserve to raise rates four times in 2018, continuing the steady once-per-quarter tightening campaign of the past year. If this happens in an environment of above-trend growth and gradually rising core inflation, the market’s estimate of the terminal rate is likely to climb. We do not expect the yield curve to invert.
The easing in financial conditions is unlikely to continue in 2019. With the economy moving past full employment, easier fiscal policy, and some concerns about financial imbalances, Fed officials will likely aim for somewhat tighter conditions. And ultimately, they are likely to succeed in this quest.
I’m in Awe of How Far the Scams & Stupidities around “Blockchain Stocks” are Going
– Wolf Richter
This can happen only during the very late stage of a bubble.
It just doesn’t let up. UBI Blockchain Internet, a Hong Kong outfit whose shares trade in the US [UBIA], filed with the SEC to sell an additional 72.3 million shares owned by its executives. In other words, it isn’t selling the shares to raise money for corporate purposes, but to allow its executives, including CEO Tony Liu, to bail out.
This is happening after the company – which sports zero revenues and a disconnected phone number in its SEC filings – managed to get its shares to spike briefly by over 1,100%, pushing its market capitalization to $8 billion.
UBI Blockchain didn’t do an IPO. Instead, in October 2016, it acquired a publicly traded shell company registered in Las Vegas, called “JA Energy.” It then changed the name and ticker symbol to what they’re now.
Is One Reason Why the Status Quo Disdains Bitcoin Is the “Wrong People Are Getting Rich”? – Charles Hugh Smith
The wrong people–rebels, outsiders, nerds and techies– got on the cryptocurrency boat while their insider/rentier “betters” blew it and are now raging bitterly onshore.
The psychology of money, wealth and speculative manias is endlessly fascinating. Most of what’s written on these subjects focus on the process of building wealth as if it were a quasi-science rather than a psychologically driven process. Only speculative manias attract a psychology-based analysis, usually characterized as some variant of the madness of the herd running off the cliff en masse.
But money and wealth are nothing but more sedate reflections of the same dynamics that drive speculative manias. Much has been written about cognitive biases and thinking fast and slow, but these explorations do not exhaust the psychology underpinning money, wealth and speculative manias.
The New Poverty – J.D. Alt
We define poverty, I suppose, as that living condition which is unable to acquire enough dollars to purchase some, or most, of the basic necessities of life. It also seems to be an accepted notion that a certain amount of “poverty” is a necessary condition of our modern market economy—that a certain segment of the population will always be “unemployable” by the profit-oriented business community, either because they lack skills or because the business community simply does not need their services in order to generate its profits. Nobody really knows what to do with these “unneeded” people. We talk about “retraining” them—but there is no guarantee the profit-seeking business community will need them even with their newly acquired skills. In the meantime, these “unneeded” people don’t know what do with themselves either. This is, perhaps, the biggest problem of all—though I will not, in this short essay, go into the details of that (except to say that it is contributing to a tragedy that is now disrupting the lives of too many of us). The point is this: It is time to begin imagining specific, concrete solutions to what is becoming a fundamental dilemma of our time.
The Biggest Oil Story of 2017 – Nick Cunningham
There have been plenty of eye-catching stories in the energy industry this year, but one notable development has been the rise of the U.S. as a crude oil exporter. The ban on crude exports from the U.S. was lifted at the end of 2015, and exports ticked up in the following year, but only modestly. 2017, however, was the year that the floodgates opened.
In the first half of the year, there were several weeks when the U.S. topped 1 million barrels per day (mb/d), but exports averaged about 750,000 bpd between January and June.
Private Sponsorship of Immigrants Is a Viable Alternative – Ryan Khurana
Immigration is a highly contentious topic in modern societies, with almost all of the different regimes across the OECD showing failures on some measure. As populist responses increase to rising levels of immigration, a policy solution must exist that assuages the concerns of those who have gripes with the current system in order to maintain political stability. Amongst the myriad of potential immigration policies, the one that stands out with the most suitable incentives is that of private sponsorship
The Greatest Bubble Ever: Why You Better Believe It, Part 2 – David Stockman29 december
During the 40 months after Alan Greenspan’s infamous “irrational exuberance” speech in December 1996, the NASDAQ 100 index rose from 830 to 4585 or by 450%. But the perma-bulls said not to worry: This time is different—-it’s a new age of technology miracles that will change the laws of finance.
It wasn’t. The market cracked in April 2000 and did not stop plunging until the NASDAQ 100 index hit 815 in early October 2002. During those a heart-stopping 30 months of free-fall, all the gains of the tech boom were wiped out in an 84% collapse of the index. Overall, the market value of household equities sank from $10.0 trillion to $4.8 trillion—-a wipeout from which millions of baby boom households have never recovered.
Likewise, the second Greenspan housing and credit boom generated a similar round trip of bubble inflation and collapse. During the 57 months after the October 2002 bottom, the Russell 2000 (RUT) climbed the proverbial wall-of-worry—-rising from 340 to 850 or by 2.5X.
Read Part 1 here…
The Hidden-in-Plain-Sight Mechanism of the Super-Wealthy: Money-Laundering 2.0 – Charles Hugh Smith
Financial and political power are two sides of one coin.
We all know the rich are getting richer, and the super-rich are getting super-richer. This reality is illustrated in the chart of income gains, the vast majority of which have flowed to the top .01%–not the top 1%, or the top .1% — to the very tippy top of the wealth-power pyramid:
Though all sorts of reasons have been offered to explain this trend–I’ve described the mechanisms of financialization here for years–two that don’t attract much mainstream media attention are money laundering and control fraud, i.e. changing the rules of what’s legal so what was illegal yesterday is legal today–presto-magico, illegally skimmed wealth is now “legal.”
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