Economische aanraders 04-08-2019
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.
‘Hidden debts’ reveal risks of China’s lending spree – Gordon Watts
Dangers of BRI project and other foreign funding programs are highlighted in a comprehensive report
For many poor nations, it is a long and winding road to ‘debt’ and ‘corruption.’ A journey littered with economic potholes in the shape of China’s signature foreign policy project which was unveiled by President Xi Jinping six years ago.
In short, the US$1 trillion Belt and Road Initiative, along with other foreign funding, has become a magical mystery tour, baffling the World Bank and the International Monetary Fund. Or, according to critics, a diplomatic car crash waiting to happen.
“Compared with China’s dominance in world trade, its expanding role in global finance is poorly documented and understood,” a report released last week by the Kiel Institute for the World Economy stated.
The Fed’s Unnecessary Rate Cut – Daniel Lacalle
If there is something that is evident is that the United States does not need a rate cut.
With the economy growing at 2.1%, unemployment at 3.6%, creating 170,000 jobs per month, and estimated underlying core inflation of 2%, no objective data justifies cutting rates that are already artificially low. Wages are rising by 3% and credit growth for companies and families is solid.
There is also no public sector financing problem. The 10-year US bond trades at a 2.05% yield, consistent with the country’s growth and inflation. In real terms, the United States borrows at almost no cost and without Federal Reserve support, as all bond demand comes from the secondary market.
First Bitcoin, then Libra: Why Nation States are Petrified – Mark Jeftovic
A few months ago I was on the Lite Show (Litecoin) podcast, we got to talking about Facebook’s forthcoming crypto currency, which hadn’t been named yet. I mused then that it would totally suck for the entire crypto-currency space to have come this far with Bitcoin, et al only to have Facebook swoop in and take all the marbles. (In marketing parlance this maneuver is called “grabbing the microphone”)
Then Facebook announced their digital currency, it’s Libra, and it was met with immediate resistance. But the pushback, didn’t come from where one might expect it, from within the crypto community. There was plenty of commentary about it to be sure, but nobody from within the crypto space was saying that Libra had to be stopped.
No, the immediate pushback came from various tendrils of myriad states and government entities, including
***Who are you going to believe, me or the evidence of your own eyes? – Joseph Stiglitz, Martine Durand, Jean-Paul Fitoussi
If what experts say has little or no relation to what people feel or can see all around them, it’s inevitable that they stop believing the experts and the politicians they advise, and look for answers elsewhere. This column introduces the work of the High-Level Expert Group on the Measurement of Economic Performance and Social Progress, which argues that we need to develop datasets and tools to examine the factors that determine what matters for people and the places in which they live. Having the right set of indicators, and anchoring them in policy, will help close the gap between experts and ordinary people that are at the root of today’s political crisis.
Main Street Small Business on the Precipice – Charles Hugh Smith
Small businesses on the precipice need only one small shove to go over the edge, and there won’t be replacements filling the fast-multiplying empty storefronts.
As a generality, the average employee (including financial pundits) has no real experience or understanding of what it takes to start and operate a small business in the U.S. Government employees in the agencies that oversee and enforce regulations on small businesses also generally lack any experience in the businesses they regulate.
A third generality is the endlessly promoted ethos of entrepreneurism cultivates the illusion that there is an essentially endless supply of entrepreneurs who are itching to start businesses and throw everything they have into the risky gamble.
All we ever hear when a restaurant owner is interviewed is how much they love their business, their work, their customers, their neighborhood, etc. etc. Sadly, enthusiasm isn’t enough to pay the rent when belt-tightening reduces sales while costs notch ever higher.
Fake Cash & Fake Accounting: Chinese Regulators Suddenly Halt 46 IPOs and Bond Offerings – Wolf Richter
The companies are clients of China’s 2nd largest audit firm, now under investigation.
On Monday, Jinhe Biotechnology and Liande Automatic Equipment disclosed in filings that they had been ordered by the China Securities Regulatory Commission (CSRC) to suspend their plans to sell bonds.
On Sunday night, four companies — Hunan Baili Engineering Sci&Tech, Jiaao Enprotech Stock, MLS Co., and Woer Heat-Shrinkable Material Co. – disclosed in filings that they had been ordered by the CSRC to suspend their IPOs in Shanghai and Shenzhen.
The Fed Chairman and the Phillips Curve – Frank Shostak
n July 11, 2019, before the Senate Banking Committee, the Federal Reserve Board Chairman Jerome Powell said that the relationship between unemployment and inflation in the US has vanished. According to Powell,
“The relationship between the slack in the economy or unemployment and inflation was a strong one 50 years ago … and has gone away,” … the strong tie between unemployment and inflation was broken at least 20 years ago and the relationship “has become weaker and weaker and weaker.”
It is a well-known belief that by means of monetary policy, the central bank can influence the rate of real economic expansion. It is also held that this influence carries a price, which manifests itself in terms of inflation. For instance, if the goal is to reach faster economic growth rate and a lower unemployment rate then citizens should be ready to pay a price for this in terms of a higher inflation rate.
Heterogeneity everywhere: Survey beliefs and portfolio allocations – Stefano Giglio, Matteo Maggiori, Johannes Stroebel, Stephen P. Utkus
Though economists have made progress determining how investors form expectations, less is known about how those expectations inform portfolio choices. Until recently, few large-scale surveys contained the data to connect individual investors’ beliefs to their actual behaviour. This column uses data collected from a novel ongoing survey eliciting investors’ expectations about GDP growth and future stock and bond returns. By measuring the extent to which investors’ persistent and heterogeneous beliefs and confidence correspond to their portfolio allocations, the research presented here highlights the potential for survey data to inform macro-finance theories.
Global declining competition – Federico Diez, Jiayue Fan, Carolina Villegas-Sanchez
Studies of the evolution of market power since 2000 have focused mostly on publicly traded US firms. This column introduces a new global study that incorporates private firms, and decomposes the aggregate effect into intensive and extensive margins. It shows the increase in markup is broad-based across countries and sectors, but is driven by a small number of firms. The markup increase is mainly explained by increases in the average markup of incumbents, and reallocation effects towards new firms that gain market share from incumbents.
***Heavy-Truck Orders Collapse Stunning 81%. Lowest Since 2010 – Wolf Richter
Order backlog still feeds truck makers, but they don’t disclose for how long.
Orders for Class 8 trucks – the iconic trucks that haul part of the economy’s goods across the country – collapsed by 81% in July compared to July last year, to 9,800 units, the lowest since 2010, according to FTR Transportation Intelligence on Friday. It was the ninth month in a row of year-over-year declines. But “declines” is not the right word. This year so far, these year-over-year “declines” ranged from -52% to -81%, which makes for a stunning collapse of the historic boom last year:
“Fleets continue to take a wait and see approach to 2020 equipment,” FTR chief intelligence officer Jonathan Starks said in a statement Friday afternoon. “Potentially higher equipment costs, uncertain demand, and enough available capacity in the market are keeping order activity at bay.”
The potential impact of machine translation on foreign trade – caution, please – Jacques Melitz, Farid Toubal
Artificial intelligence has made spectacular progress in recent years. One particular source of high expectations is automatic translation and whether it will finally bring about the long-predicted death of distance in trade. This column examines the impact of a common language on bilateral trade and finds that the net result of reducing linguistic frictions with a set of trading partners is not apparent.The potential impact of machine translation on foreign trade remains up in the air.
Plastic Bans: Imaginary Benefits, Real Costs – Robert P. Murphy
Canadian Prime Minister Trudeau recently proposed a federal ban on certain single-use plastics, arguing, “We have a responsibility to work with our partners to reduce plastic pollution, protect the environment, and create jobs and grow our economy.” As with similar measures in California, Hawaii, and New York, the proposed Canadian ban on plastics will harm consumers while providing very little benefit, even on Trudeau’s own terms.
The biggest problem for the plastic banners is that their measures (so far) apply to jurisdictions that have little to do with the ostensible problem. The biggest contributors to plastic in the ocean are China and Indonesia; a 2015 article in Science concluded that OECD countries contribute less than 5 percent of the plastic waste from land sources.
Those Key Behind-the-Scenes Stories That Silver Tells – Przemyslaw Radomski
Summing up, the breakdown in the gold stocks and the multiple signals coming from the silver market clearly confirm that the rally in the precious metals sector has most likely already ran its course. Moreover, let’s keep in mind that gold has recently invalidated its breakout above the previous highs, the late-2013 highs, and the upper border of the pennant pattern, which is also a very strong bearish sign. The situation in the currency market confirms the bearish outlook for the PMs. In those circumstances, we simply cannot predict higher gold price in the medium term. There will most likely be times when gold is trading well above the 2011 highs, but they are unlikely to be seen without being preceded by a sharp drop first.
Trade and investment in the global economy – James Anderson, Mario Larch, Yoto Yotov
Foreign direct investment has traditionally been viewed as a key driver of prosperity, and modern FDI has also become a vehicle for transferring intangible assets. This column uses a counterfactual experiment based on a hypothetical world with no outward or inward FDI to and from low-income and lower-middle-income countries to examine the effects of FDI on trade, domestic investment, and welfare. World welfare falls by about 6% and all countries lose out, with some poorer countries losing over 50%. World trade falls by 7%, with the losses again unevenly distributed.
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