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.

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Yield Curve Control: Bubbles and Stagnation – Daniel Lacalle
31 maart
Central banks do not manage risk, they disguise it. You know you live in a bubble when a small bounce in sovereign bond yields generates an immediate panic reaction from central banks trying to prevent those yields from rising further. It is particularly more evident when the alleged soar in yields comes after years of artificially depressing them with negative rates and asset purchases.
It is scary to read that the European Central Bank will implement more asset purchases to control a small move in yields that still left sovereign issuers bonds with negative nominal and real interest rates. It is even scarier to see that market participants hail the decision of disguising risk with even more liquidity. No one seemed to complain about the fact that sovereign issuers with alarming solvency problems were issuing bonds with negative yields. No one seemed to be concerned about the fact that the European Central Bank bought more than 100 percent of net issuances from eurozone states. What shows what a bubble we live in is that market participants find logical to see a central bank taking aggressive action to prevent bond yields from rising … to 0.3 percent in Spain or 0.6 percent in Italy.
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Preparing for a wave of non-performing loans: Empirical insights and important lessons – Johannes Kasinger, Jan Pieter Krahnen, Steven Ongena, Loriana Pelizzon, Maik Schmeling, Mark Wahrenburg
1 April
Once moratoria and other Covid-19 support measures are unwound, European banks will likely be confronted by a wave of non-performing loans. This column provides empirical insights on the current levels of such loans in Europe and draws lessons from previous financial crises for their effective treatment. It highlights the importance of early and realistic assessment of loan losses to avoid adverse incentives for banks. Secondary loan markets would help in this process and further facilitate bank resolution as laid down in the Bank Recovery and Resolution Directive, which should be upheld even in extreme scenarios.
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The Hazardous Detour in the Road to “Recovery” Few Foresee – Charles Hugh Smith
29 maart
As the level of Fed smack and crack needed to maintain the high increases, system fragility increases geometrically.
You know the plot point in the horror film where the highway is blocked and a detour sign directs the car full of naive teens off onto a rutted track into the wilderness? We’re right there in the narrative of “the road to recovery”: the highway that everyone expected would be smooth and wide open is about to be detoured into a rutted track that peters out in a wilderness without any lights or signage.
Oops–no cell coverage out here either. Is that the road over there? Guess not–we just careened into a canyon alive with the roar of a raging river. Our vehicle keeps sliding downhill, even with the brakes locked… this trip to “recovery” was supposed to be so quick and easy, and now there’s no way out… what’s that noise?
You know the rest: the naive, trusting teens are picked off one by one in the most horrific fashion. Substitute naive punters in the stock market and you have the script for what lies ahead.
The “recovery” has an unfortunate but all-too accurate connotation: recovery from addiction. The “recovery” we’ve been told is already accelerating at a wondrous pace does not include any treatment of the market’s addiction to Federal Reserve free money for financiers; rather, the “recovery” is entirely dependent on a never-ending speedball of Fed smack and crack and a booster of Fed financial meth.
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GDP Hides the Damage from the Covid-19 Lockdowns – Patrick Barron
29 maart
Do not believe government pronouncements that the economy is rebounding from very minimal damage caused by unprecedented covid-19-inspired closures of businesses. Government will use its favorite statistic of the health of the economy to justify its actions—gross domestic product (GDP).
GDP is supposed to represent the total of spending on final goods and services in the economy. It is a Keynesian term that elevates a concept called “aggregate demand” as most important. Not production and especially not savings. In fact Keynesians fear savings most of all. Now, you and I know that we can become wealthier only by saving some of our income and investing it wisely for the future. But Keynesians invented a concept called “the paradox of thrift,” whereby they claim that the economy enters a death spiral from reductions in spending caused by an increase in savings. Individually, savers may be better off, they say, but collectively the economy suffers. For example, the new auto that we savers do not buy, rather keeping our old one in good repair for a few more years, denies the automakers and all who work for them the money they need to continue production. Layoffs and plant closings ensue. The reduction in aggregate demand ripples outward, bankrupting more and more support businesses and their employees. This is the simplistic Keynesian view of savings.
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Unstuffing banks with Fed deposits: Why and how – Robert McCauley
30 maart
US banks currently hold almost $4 trillion in Fed deposits, as a result of the ongoing balance sheet expansion by the Federal Reserve. Meanwhile, a year-long exclusion of Fed deposits and US Treasuries from bank capital rules is set to expire on 31 March. This column proposes a simple, feasible, and mandate-consistent strategy to replace $3 trillion in deposits with Treasury bills. These Treasuries could be held not only by banks, but also by mutual funds and non-residents, and this substitution could also save taxpayers money.
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Our “Wealth”: Cloud Castles in the Sky – Charles Hugh Smith
31 maart
Buyers know there will always be a greater fool willing to pay more for an over-valued asset because the Fed has promised us it will always be the greater fool.
I realize nobody wants to hear that most of their “wealth” is nothing more than wispy Cloud Castles in the Sky that will dissipate in the faintest zephyr, but there it is: that which was conjured out of thin air will return to thin air.
I’ve assembled a few charts that reflect the illusion of financial wealth that has a death grip on the public psyche. Something for nothing is a powerful attractor, but it doesn’t offer a narrative that the delusionally self-important demand: I earned this by working hard and being smart. Oh, right, yeah, sure. It had nothing to do with currency being created out of thin air and made available to insiders, financiers, banks, etc., or being able to leverage this new money into ever-larger bets, all guaranteed to be winning trades by the Federal Reserve. Nope, you’re all stone-cold geniuses.
Back in reality, note that tangible assets–real as opposed to financial conjuring–are at historic lows relative to financial-bubble assets: tangible assets represent such a meager proportion of total assets that we might assume they could slip to zero without affecting our “wealth” much at all.
If we compare financial-bubble assets to the nation’s Gross Domestic Product (GDP), a (flawed) measure of real-world activity, we find Cloud Castles in the Sky are worth over six times the nation’s real-world economy. This reflects what happens to the valuations of Cloud Castles in the Sky when “money” is created out of thin air and then leveraged into fantastic, monstrous illusions of “wealth.”
The next two charts illustrates the sole dynamic driving assets higher: the Fed is the greater fool. Assets are chasing their own tails higher, completely disconnected from the real world, a reality visible in the chart of IWM, the small-cap index. Examine the recent rocket launch higher and explain why this is completely disconnected from previous decades’ valuations.
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When Central Bank Arsonists Take Victory Laps… – Mark Jeftovic
2 april
File under: “It is impossible to get a man to understand something when his livelihood depends on his not understanding it.”
Shortly after I woke up on Good Friday, the day after April Fool’s this year, I came across a Bob Murphy tweet replying to Mark Carney, the Canadian central banker and Davos darling:
It turned out the tweet he was responding to was the fourth in a 5-series tweetstorm extolling the virtues of central bank mangling of stewardship over the financial markets.
The series was extraordinarily devoid of self-awareness, taking a victory lap on behalf of central bankers and The Saviour State.
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US Dollar’s Status as Dominant “Global Reserve Currency” Drops to 25-Year Low – Wolf Richter
31 maart
Central banks getting nervous about the Fed’s drunken Money Printing and the US Government’s gigantic debt? But still leery of the Chinese renminbi.
The global share of US-dollar-denominated exchange reserves dropped to 59.0% in the fourth quarter, according to the IMF’s COFER data released today. This matched the 25-year low of 1995. These foreign exchange reserves are Treasury securities, US corporate bonds, US mortgage-backed securities, US Commercial Mortgage Backed Securities, etc. held by foreign central banks.
Since 2014, the dollar’s share has dropped by 7 full percentage points, from 66% to 59%, on average 1 percentage point per year. At this rate, the dollar’s share would fall below 50% over the next decade.
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Dollar’s Share Of Global Reserves Tumbles To Lowest Since 1995 As Yuan’s Hits All Time High – Tyler Durden
3 april
Last week, the The IMF released the latest Currency Composition of Official Foreign Exchange Reserves (COFER) report for Q4 2020.
It showed that the trend of global dedollarization has accelerated and while the Dollar’s share of global reserves initially increased at the start of the pandemic, it has since decreased sharply and now stands at just 59% – a 1.5% decline for the quarter and the lowest level since 1995. According to Goldman, a fair bit of the decline over the last few quarters was due to valuation effects as the Dollar depreciated, but the decline in Q4 can be largely attributed to active selling as well. The Euro, Yen and Renminbi were the main beneficiaries of this dollar dump, while the uptick in Sterling’s share appears to be mostly due to the currency’s appreciation.
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The ‘spend now, tax later’ Budget – Ethan Ilzetzki, Jason Jia
2 April
In his Spring Budget, UK Chancellor Rishi Sunak announced a super-deduction that allows companies to deduct 130% of expenses on capital on most investments on plant and equipment. This column reveals that the majority of the CfM panel of experts on the UK economy think this super-deduction will moderately aid the UK’s recovery from the Covid recession, but that the announced corporate tax increases also announced in the Budget will do moderate harm. Most panellists believe that the government is moving too fast on deficit reduction.
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Big Debt Plus Rising Interest Rates = Big Danger – Doug French
3 april
If there is anything Wall Street banks crave is relief. Primarily relief from the potential for failure and, next, relief from holding much, if any, equity capital. These banks like their capital tiny and their profits huge. Losses should be socialized. After all, we want the ATMs to keep spitting out cash.
The SLR will be allowed to expire at the end of this month before most of us knew what it was—”supplementary leverage ratio.” When covid hit the fan last March, as the WSJ explains, “The ratio measures capital—funds that banks raise from investors, earn through profits and use to absorb losses—as a percentage of loans and other assets. Without the exclusion, Treasurys and deposits count as assets [not equity].”
No SLR means less leverage and lower profits for the big banks. But, the Federal Reserve must be careful, the yield on the US ten-year note has exploded to 1.72 percent.
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The hidden costs of corporate social responsibility – Guglielmo Briscese, Nick Feltovich, Robert Slonim
3 April
Companies often engage in activities of corporate social responsibility such as donating a share of profits to charity. Previous research suggests these initiatives can help attract and motivate workers, even at the cost of giving up part of their compensation. This column presents experimental evidence that shows, however, that when workers can choose who they want to work for, they prefer firms that offer a higher wage, and are attracted by a firm’s corporate social responsibility only when they consider their wage offer as ‘fair’. Further, if companies compensate donations to charity by reducing workers’ wages, this could ultimately harm workers’ wellbeing, depending on the worker’s views on the donations.
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QE During the “Everything Mania”: Fed’s Assets at $7.7 Trillion, up $3.5 Trillion in 13 months – Wolf Richter
2 april
But long-term Treasury yields have surged, to the great consternation of our Wall Street Crybabies.
The Fed has shut down or put on ice nearly the entire alphabet soup of bailout programs designed to prop up the markets during their tantrum a year ago, including the Special Purpose Vehicles (SPVs) that bought corporate bonds, corporate bond ETFs, commercial mortgage-backed securities, asset-backed securities, municipal bonds, etc. Its repos faded into nothing last summer. And foreign central bank dollar swaps have nearly zeroed out.
What the Fed is still buying are large amounts of Treasury securities and residential MBS, though no one can figure out why the Fed is still buying them, given the crazy Everything Mania in the markets.
But for the week, total assets on the Fed’s weekly balance sheet through Wednesday, March 31, fell by $31 billion from the record level in the prior week, to $7.69 trillion. Over the past 13 months of this miracle money-printing show, the Fed has added $3.5 trillion in assets to its balance sheet
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Lockdowns and Easy Money Bring a Weak Recovery for Europe – Daniel Lacalle
1 april
If we looked at most investment bank outlook reports for 2021, one of the main consensus themes was a strong conviction on a rapid and robust eurozone recovery. They were wrong.
This week, Capital Economics joined other analysts and downgraded the eurozone growth, highlighting “We now think that the eurozone economy will recover more slowly than we previously anticipated, growing by about 3% this year and 4.5% in 2022. Meanwhile, euro-zone government bond yields seem unlikely to fall much further, and with Treasury yields set to increase significantly, we expect the widening yield gap to cause the euro to weaken against the US dollar.”
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***Regulation and economic growth: A ‘contingent’ relationship – Massimo Morelli, Matia Vannoni
29 maart
The link between regulation and the economy has been central in political economy since the 1970s. Using data on US states from 1965 to 2012, this column argues that regulation may be good or bad for the economy depending on its type and the information and incentives of the regulators. More regulation leads to higher economic growth when that regulation is more detailed, when the current level of regulation is lower, when uncertainty is higher, and in contexts with greater competition and/or opportunity of experimentation among regulation proposers and greater accountability.
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What’s Behind the Stunning Spike in Used Vehicle Auction Prices? That Consumers Aren’t on Buyers Strike Shows Something Big about Inflation Has Changed – Wolf Richter
27 maart
Need a used pickup truck? Forget it, or pay out of your nose for it. But even spurned mid-sized cars are seeing stunning price increases.
Prices of used cars and trucks of up to eight years old that were sold at wholesale auctions during the week ended March 21 jumped by 3.1% from the prior week, according to data by J.D. Power on Friday. Over the past four weeks, prices have spiked by 8.3%. Compared to early March 2020, just before the end of the Good Times, prices have spiked by 19.5%.
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The Property-Based Social Order Is Being Destroyed by Central Banks – Zachary Yost
1 april
Readers of the Mises Wire are no doubt familiar with the negative consequences of central banking and the inflationary capacity of fiat currency and how such a system drives malinvestment and leads to boom-bust cycles. Not only does the business cycle lead to the misallocation of resources from their natural ends of the structure of production, but it also drives resources into financialization, rather than the “real” economy. This financialization, which has been taking place since at least the First World War, has served, over time, to structurally undermine the morality of property in the eyes of the general public. As the increased popularity of socialism, at least in rhetorical terms, among the youth indicates this “evaporation” of property may reach a critical mass within the not-too-distant future.
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External sovereign debt restructurings: Delay and replay – Clemens Graf von Luckner, Josefin Meyer, Carmen Reinhart, Christoph Trebesch
30 maart
Today, more than half of low-income countries eligible for relief under the Debt Service Suspension Initiative are either in debt distress or at high risk. Several emerging markets have either recently restructured (Argentina and Ecuador) or remain in default (Lebanon, Surinam, and Venezuela). In this context, this column reviews some of the features of external sovereign debt restructurings. It shows that default spells are lengthy and that the road to debt-crisis resolution is often littered with serial restructuring agreements.
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Real Savings Are at the Heart of Lending – Frank Shostak
30 maart
After climbing to 12.2 percent in April last year, the yearly growth rate of combined commercial bank real estate and consumer and business loans plunged to –2.6 percent in early March.
For most commentators an important factor in setting economic prosperity in motion is bank lending. Hence, this sharp decline in the yearly growth rate in bank loans raises the likelihood that US economic activity is under strong downward pressure. Consequently, most commentators are of the view that central authorities must provide the necessary support to strengthen bank-lending growth. However, is it true that bank lending is an important factor in economic prosperity?
For instance, farmer Joe, who produced two kilograms of potatoes. For his own consumption, he requires one kilogram, and the rest he decides to lend for one year to farmer Bob. The unconsumed one kg of potatoes that he agrees to lend is his real savings. This example is necessary in order to illustrate that for lending to take place there must be real savings first. Lending must be fully backed by real savings.
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***Capital and economic growth in Britain, 1270–1870: Preliminary findings – Stephen Broadberry, Alexandra de Pleijt
4 April
Little is known about the role of capital in economic growth before the late 19th century. This column provides the first estimates of investment and the capital stock in Britain as far back as 1270. Although important changes did occur in the role of capital, such as the growing importance of fixed capital relative to working capital and a substantial increase in the investment share of GDP, growth accounting analysis shows that productivity growth was more important than capital deepening in explaining the growth of output per head.
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