Economische aanraders 03-04-2022

Economische aanraders

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.

European Environmentalists Have Made Energy Independence Impossible – aniel Lacalle
30 maart

Europe is not going to achieve a competitive energy transition with the current interventionist policies. Europe does not depend on Russian gas due to a coincidence, but because of a chain of mistaken policies: banning nuclear in Germany, prohibiting the development of domestic natural gas resources throughout the European Union, added to a massive and expensive renewable rollout without building a reliable backup.
Solar and wind do not reduce dependency on Russian natural gas. They are necessary but volatile and intermittent. They need backup from nuclear, hydro, and natural gas for security of energy supply. Dependency on these backup sources rises in periods of low wind and little sun, just when prices are highest.
“Solar goes to zero for twelve hours a day, and that is guaranteed. The wind blows sometimes, and sometimes it does not, also guaranteed. They both depend on weather, which is 100% out of human control. They are on their best day a supplement,” wrote a Navy pilot follower.
Batteries are not an option, either. It is impossible to build an industrial-size network of enormous batteries; the cost would be prohibitive and the dependency on China (for lithium, etc.) to build them would be even more of a problem. At current prices, a battery energy-storage system of Europe’s size would cost more than $2.5 trillion, according to an MIT Technology Review paper, massively more expensive than any other alternative.
***The Global Order Has Cracked – Charles Hugh Smith
3 April

Nations that fail to adapt to the end of financialization and globalization will unravel.
We all sense the global order has cracked. The existing order is breaking down on multiple fronts. Those who have benefited from this arrangement are doing everything in their power to patch the cracks, while those who chafed under the old order’s chains seek a new order that suits their interests.
The task now is to make sense of this complex inflection point in history.
Two statements summarize the transition from the existing global order to the next iteration:
1. Finance dominated resources in the old order. Now the roles will reverse and real-world resources will dominate finance. We can’t “print our way” out of scarcities.
2. Reshuffling currencies and credit will not stop the breakdown of the global order’s “waste is growth” Landfill Economy Model.
Playing financial tricks has extended the life of an unsustainable economic model that glorified “growth” from wasting resources. By expanding credit “money,” the current global order fueled unsustainable consumption driven by unsustainable speculation.
Stop expanding “money” and credit and the global order of “growth” implodes.
Why paying in roubles for Russian gas and oil might matter – Alexander Mihailov
29 Maart

In response to sanctions imposed on Russia following the invasion of Ukraine, President Putin recently announced that ‘unfriendly’ countries would have to pay for Russian gas (and perhaps oil in the future) in roubles. This column discusses the possible reasons for the announcement and the potential economic and financial implications if Putin were to follow through on it.
Commodities Do Not Cause Inflation. Money Printing Does. – Daniel Lacalle
31 maart

In this world of monetary insanity, defenders of central bank constant easing try every day to convince you that inflation is caused by numerous factors, not by currency printing.
Many blame inflation on cost-push factors or even speculation, but ultimately all those are consequences, not causes. Rising prices are always caused by more units of currency being directed to scarce or tangible assets.
Commodities exchange-traded funds (ETFs) are a clear example. In 2022, investors have been purchasing these products to protect themselves from inflation and generate real returns. These purchases are not a cause; they are a consequence. With increased inflationary concerns, the likelihood of rising interest rates, and elevated geopolitical concerns, commodity-focused funds have seen record inflows in 2022. Year to date through February 25, commodities ETFs gathered $8.5 billion of net ETF inflows, according to This is not the full picture, though. According to the Commodity Futures Trading Commission (CFTC), the total value of various commodity index-related instruments purchased by institutional investors has increased from an estimated $15 billion in 2003 to an estimated $200 billion. The global commodity-services market size is estimated at $4 trillion in 2020, according to Market Research.
Will inflation persist? – John H. Cochrane
31 maart

Will inflation persist? One line of thought says no: This inflation came from a one-time fiscal blowout. That “stimulus” being over, inflation should stop. In fiscal language, we had a one-time big deficit, that people do not expect to be repaid by future surpluses. That gives rise to a one-time price-level increase, paying for the deficit by inflating away some debt, but then it’s over.
There are many objections to this argument: We still have persistent deficits, and the entitlement deluge is coming. Or, maybe our inflation comes from something else.
Here, I analyze one simple point. Suppose we do, in fact, have a one-time large deficit. How much do sticky prices and policy responses draw a one-time deficit shock out to a long-lasting inflation? The answer is, quite a bit.
Central Banks Have Broken the True Savings-Lending Relationship – Frank Shostak
28 maart

Most people believe lending is associated with money. But there is more to lending. A lender lends savings to a borrower as opposed to “just money.” Let us explain.
Take a farmer, Joe, who has produced two kilograms of potatoes. For his own consumption, he requires one kilogram, and the rest he agrees to lend for one year to another farmer, Bob. The unconsumed kilogram of potatoes that he agrees to lend is his savings.
By lending a kilogram of potatoes to Bob, Joe has agreed to give up for one year his ownership over these potatoes. In return, Bob provides Joe with a promise that after one year he will repay 1.1 kilograms of potatoes, with the 0.1 kilogram constituting interest. Note that the existence of savings is the precondition for lending (there must be savings first). Savings must fully back lending.
How to solve Europe’s Russian gas conundrum with a tariff – Daniel Gros
30 Maart

In the search for additional sanctions against Russia, one idea which is often discussed is for the EU, or individual Member States, to ban imports of Russian gas. The economic consequences of such a step would be very severe in the short run. This column makes the case for an alternative measure that would minimise economic disruptions and which would have a strong impact on the revenues flowing to Russia – a special import tariff on Russian gas.
***The Return of the Austrians – Mark Thornton
28 maart

The 1960s and 70s were precarious times for the Austrian school. Ludwig von Mises was very old, retired, and would die in 1973 at the age of ninety-two. Friedrich Hayek was also retired and ensconced at the University of Salzburg in Austria from 1969 to 1977. He called his move to Salzburg a mistake. He had not worked on business cycles and monetary policy for many decades and his research interests at this time were very different. Henry Hazlitt retired from Newsweek in 1966 at the age of seventy-two. Murray Rothbard was a young man and was marginalized and isolated, with little institutional support. There were precious few other Austrian economists in the entire world, and the next generation of Austrian economists had not left graduate school or had not even entered graduate school.
Mises at the age of eighty-nine continued to lecture during the critical 1968–70 period, and make public appearances. Some of his more important lectures included: “The Problems of Inflation” (April 3, 1968); “On Money” (April 3, 1969); “The Balance of Payments” (May 1, 1969); “A Seminar on Money” (November 8, 1969); “The Free Market Society” (February 21, 1970), where he discussed the problems arising from increasing the supply of money; and “Monetary Problems” (June 23, 1970), where he discussed why the return to the true gold standard was so important and essential for economic growth and stability and why the Bretton Woods system was so problematic. Sampling these lectures makes it obvious that Mises in his elder years was completely attuned to the monetary-policy problems and their potential consequences and was doing his best to alert others of the looming dangerous outcomes.
***Tax and social insurance benefits for low-income spouses stand as obstacles for women’s participation and wage growth in Japan – Sagiri Kitao, Minamo Mikoshiba
30 Maart

Japan ranks 120th among 156 countries in terms of its gender gap, with women earning significantly less than men. This column uses survey data to investigate the employment and earnings dynamics of women in Japan over their life-cycle, and finds that tax exemptions and social insurance benefits for low-income spouses significantly dampen women’s labour supply and earnings. There is a significant room to improve women’s participation and earnings by removing the fiscal policies that disincentivise work and skill accumulation. The policy changes would also mean that the government could raise more tax revenues without causing a welfare loss.
Central Banks: Who Needs Them? No One – Vibhu Vikramaditya
31 maart

As the Federal Reserve hikes its lending rate to a range of 0.25–0.50 percent, murmurs are heard around the world, with financial pundits predicting doom due to the increased pressures imposed on the cost structures of firms that are recovering from the pandemic lockdowns. The Federal Reserve is leader of the group of central banks around the world that are ostensibly directed by their respective countries to pursue stability and smooth functioning of their economies.
The alleged legitimacy of central banks rests on three fundamental goals that central banks around the world share. The first goal is price stability, which is the belief that central banks should expand and contract the money supply in relation to actual demand and supply pressures from the economy. Goal number two is fueling macroeconomic growth prospects, which is done through lowering the cost of borrowing, which supposedly leads businesses to increase their investments, leading to increases in output and overall growth.
Finally, the last goal is performing countercyclical measures, which are actions that the central bank undertakes in order to offset the high unemployment rates that may result from falling output during a trough in the business cycle.
Trust and monetary policy – Paul De Grauwe, Yuemei Ji
2 April

Trust impacts many aspects of economic life and plays some role in standard macroeconomic models. This column analyses the importance of trust in a more systematic way using a behavioural macroeconomic model. The authors find that large negative supply shocks lead to a bifurcation between good and bad trajectories of output, inflation, and trust. Initial conditions matter in determining which trajectory will be chosen. The model helps to understand and predict the experience of the 1970s with the supply shocks and the recent Covid supply shock.
Calm Before the Storm? – Charles Hugh Smith
28 maart

Stocks don’t vanish when sold; somebody owns the shares all the way to the bottom. These owners who refuse to sell because they have convinced themselves the next dip will be the hoped-for resumption of the bullish trend are called “bagholders.”
Trends are tricky. Humans anticipate the present conditions will continue on into the future. In economics and finance, we call this continuation a “trend.” Trends continue until something fundamental changes and the trend takes a new course.
If asset prices, credit, sales, jobs, tax revenues and profits are all expanding, we call this trend “bullish.”
If the economy and asset prices are contracting, we call this “bearish.”
People are much happier in bullish trends because they’re making money without any effort as the assets they own are going up in value. They feel wealthier and so they borrow and spend more money, which furthers the expansion.
This self-reinforcing feedback reverses in bearish trends as people feel poorer so they borrow and spend less, reducing demand for goods and services.
People don’t like feeling poorer so bear trends are not favored. The focus of those in power is to reverse any bear trend into a bull trend and extend the bull trend as long as possible.
But eventually every bull trend runs into limits. People borrow the maximum their income can support and then they borrow more to bet that assets will continue rising in value.
Update on US Dollar as Global Reserve Currency and the Impact of USD Exchange Rates & Inflation – Wolf Richter
2 april

Dollar drops to lowest share in 26 years. Slowly but surely?
With inflation raging in the US following the Fed’s $5-trillion money-printing orgy and interest-rate repression, the question constantly arises: When will the rest of the world throw in the towel on the dollar as the dominant global reserve currency? If this were to happen all of a sudden, it would spell chaos. But it is happening little by little.
The global share of US-dollar-denominated foreign exchange reserves fell by 40 basis points from Q3 to 58.8% in Q4, setting a new 26-year low, edging out the low in Q4 2020, according to the IMF’s COFER data released at the end of March. Dollar-denominated foreign exchange reserves consist of Treasury securities, US corporate bonds, US mortgage-backed securities, and other USD-denominated assets that are held by foreign central banks and other foreign official institutions.
Why Saudi Arabia Won’t Abandon Dollars for Yuan – Daniel Lacalle
29 maart

There are numerous articles mentioning that Saudi Arabia may use the yuan, China’s domestic currency, for its oil exports.
How much does Saudi Arabia export to China? According to the Organisation of Economic Co-operation and Development, the kingdom’s main exports are to China ($45.8B), India ($25.1B), Japan ($24.5B), South Korea ($19.5B), and the United States ($12.2B). Exports of crude oil reached $145 billion in total.
Saudi Arabia is the world’s largest oil exporter at $145 billion, and China the largest buyer at $204 billion, with 2019 figures.
Saudi Arabia’s public accounts are exemplary. From a 4.8 percent deficit, the kingdom expects a surplus in 2022, and its ratio of public debt to GDP (gross domestic product) is 30.8 percent, one of the lowest in the world.
Does Saudi Arabia need to use the yuan at all? No. Its foreign currency reserves including gold stood at $472.8 billion in 2020 despite the pandemic-led slump in exports and oil demand. Is it under any pressure to change currency? Even less so. Its reserves comfortably cover its external debt, giving it an enviable level of stability compared to other OPEC (Organization of the Petroleum Exporting Countries) nations that have large trade and fiscal deficits.
What would Saudi Arabia gain from using the yuan? Not higher exports to China. China needs its oil imports more than Saudi Arabia needs China’s domestic currency. There is no real evidence that exports to China would fall if Saudi Arabia continued to use the US dollar.
Russia’s war against Ukraine might persistently shift global supply chains – Tobias Korn, Henry Stemmler
31 Maart

The war Russia is waging against Ukraine has already halted most of Ukraine’s production capabilities. Similarly, the sanctions raised against Russia by the international community end decades of economic cooperation across several economic sectors. This column draws on empirical evidence from over two decades of civil wars across the world to inform the debate on how international supply chains will adjust to the economic disruptions brought by violence, and how likely it is that the international economy will ever return to the pre-war situation.
Money Supply Growth Heads Back Up: February Growth Up to 7 Percent – Ryan McMaken
1 april

Money supply growth rose for the third month in a row in February, continuing ongoing growth from October’s twenty-one-month low. Even with February’s rise, though, money supply growth remains far below the unprecedented highs experienced during much of the past two years. During thirteen months between April 2020 and April 2021, money supply growth in the United States often climbed above 35 percent, well above even the “high” levels experienced from 2009 to 2013. As money supply growth returns to “normal,” however, this may point to recessionary pressures in the near future.
During February 2022, year-over-year (YOY) growth in the money supply was at 7.1 percent. That’s up from January’s rate of 6.8 percent, and down from the February 2021 rate of 39.1 percent. Growth peaked in February 2021.
Historically, the growth rates during most of 2020, and through April 2021, were much higher than anything we’d seen during previous cycles, with the 1970s being the only period that comes close.
Managing sovereign debts held by the Eurosystem: Operational and legal constraints – Stefano Micossi
1 April

There have been various proposals for how to manage the sovereign debt portfolio accumulated by the Eurosystem in its efforts to raise inflation and provide emergency support in response to the pandemic. This column argues that the euro area needs a new mechanism to free the Eurosystem of the encumbrance of its sovereign portfolio. Such a mechanism cannot be provided by the Eurosystem itself, since this would eventually be inconsistent with its mandate. Instead, the European Stability Mechanism could perform that task while respecting all relevant European law.
How the Massive Gains in Average Hourly Wages Look Ludicrous Compared to the Reality of Spiking Prices – Wolf Richter
1 april

Rents, houses, used and new vehicles, gasoline, groceries, forget it, hahahaha
One of the results of the very tight labor market is the surge in hourly wages, particularly for workers in the category of private-sector “production and nonsupervisory employees,” where average hourly wages jumped by 6.7% for the third month in a row in March, compared to a year ago, according to the Bureau of Labor Statistics. Other than the lockdown distortions in April and May 2020, this was the biggest gain since early 1982.
These are workers in all industries and in all jobs that are non-management jobs, ranging from waiters to Facebook coders and Goldman Sachs traders. In dollar terms, the average wage of Production and Nonsupervisory Employees increased by $0.11 from the prior month, and by $1.71 from a year ago, to $27.06.
What Causes Exceptionally Low Inflation in Japan and Switzerland? – Taiki MuraiGunther Schnabl
2 april

Recently, many industrialized countries such as the United States and the euro area have experienced high and further rising inflation, whereas in Japan and Switzerland inflation has remained low. While inflation reached 5.9 percent in the eurozone and 7.9 percent in the US in February 2022, Japan and Switzerland reported 1.0 percent and 2.2 percent, respectively. Since the turn of the millennium, the average year-over-year inflation has been 0.1 percent in Japan and 0.4 percent in Switzerland, compared to 1.7 percent in the eurozone and 2.2 percent in the US. What causes the exceptionally low inflation rates in these two low-inflation islands? There are three reasons.
First, as US interest rates have gradually declined since the early 1980s, Japan and Switzerland have kept their interest rates below the US’s interest rates. Since 1980, the average yield on ten-year Japanese government bonds has been about 2.8 percentage points lower than the yield on ten-year US government bonds (see figure 1, left panel). The situation is similar in Switzerland (see figure 1, right panel), which is widely regarded as a safe haven for international capital. The increasingly expansionary monetary policies in both countries anticipated high inflation; however, it has not happened, as the drastic expansion of domestic money supply has only partially been absorbed by the domestic economy.
Ukraine invasion: From oil sanctions to accelerating the energy transition – Rabah Arezki, Per Magnus Nysveen
1 April

The sanctions placed on Russian oil may give new impetus to the energy transition by encouraging developed economies to find new sources of energy. Current policy has focused largely on supply-side responses to manage this development; this column argues that demand-side policies may also play a critical role. The authors argue for policies that increase the price elasticity of oil demand, such as incentives for individuals to switch to electric vehicles through subsidies. Nonetheless, they emphasise that the distributional effects of policies, including carbon pricing, are politically important and cannot be ignored.
The Fed Cannot Undo the Damage It Has Already Caused – Frank Shostak
1 april

On Wednesday, March 16, 2022, the US central bank, the Federal Reserve System, raised the target for the federal funds rate by 0.25 percent, to 0.50 percent. According to Fed officials, the increase in the federal funds rate target was in response to the strong increases in the yearly growth rate of the Consumer Price Index (CPI), which stood at 7.9 percent in February against 7.5 percent in January and 1.7 percent in February of the year before.
Most commentators believe that by raising the interest rate target, the central bank can slow the increase of prices of goods and services. Supporters of this strategy often refer to May 1981, when then Fed chairman Paul Volcker raised the fed funds rate target to 19 percent from 11.25 percent in May 1980. The yearly growth rate in the CPI, which stood at 14.8 percent in April 1980, fell to 1.1 percent by December 1986 (see chart).
Reforming the European fiscal framework: Increasing compliance, not flexibility – Lars Feld, Wolf Heinrich Reuter
31 Maart

Debt ratios of EMU member states, which were already high in some cases, have increased significantly during the pandemic. This column argues that the current review of the European fiscal framework should not only discuss the design of the framework, but also how to strengthen enforcement and increase compliance with the fiscal rules. Increasing the political costs of non-compliance – through a reduction of complexity of the framework, an increase in national ownership and transparency, as well as simplicity of assessment – could help achieve this. Adding more flexibility, exceptions, and discretionary judgement would be counterproductive.
My “Wealth Disparity Monitor” of the Fed’s Money-Printer Era: Holy Moly. April Update of the Greatest Economic Injustice in Recent History – Wolf Richter
3 april

The wealthy got immensely wealthier. Everyone else paid for it via rampant inflation.
The Fed’s own data on the distribution of wealth in the US is a quarterly report card on the Fed’s official policy goal of the “Wealth Effect.” It has now released the data for Q4. The Fed uses monetary policies, such as QE and interest rate repression, to create asset price inflation and make a relatively small number of large asset holders vastly wealthier so that they might spend more. This has been explained in numerous Fed papers, including by Janet Yellen back when she was still president of the San Francisco Fed.
The Fed’s wealth distribution data divides the US population into four groups by wealth: The “Top 1%,” the “2% to 9%,” the “next 40%,” and the “bottom 50%.” My Wealth Effect Monitor divides this data by the number of households in each category, to obtain the average wealth per household in each category.
How Russia Tries To Avoid Sanctions – Daniel Lacalle
3 April

There are numerous headlines showing the surprising recovery of the Russian ruble against the US dollar and the euro. By the first week of April the Russian currency had recovered all the losses against the greenback and the euro area currency.
Obviously, there is an important difference that needs to be considered. Massive capital controls were implemented in Russia after the heavy sanctions of the West and no Russian citizen or business can sell rubles to buy dollars, euros, pound, or yen. It is impossible to know what would have happened to the Russian currency if capital controls had not been implemented, but we know that no Russian citizen can exchange local currency for international ones and very unlikely at the official rate. In essence, the Russian ruble “traded” price does not reflect an abrupt change in demand, just the effect of capital controls.
We do not know what exchange rate is used in the underground market, but we can safely assume that the free-market exchange rate of the ruble is significantly lower than the official rate. According to Business Insider, there is a underground market using Telegram and other social media chats where citizens can buy or sell foreign currency, with some messages showing prices for rubles that are 30% to 50% lower than the official rate.

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