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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Biden’s “Historic Growth” Is No Such Thing – Daniel Lacalle
4 februari
I was surprised to see a tweet from President Joe Biden showing the gross domestic product (GDP) of the United States for 2021 compared to the average GDP growth under other presidents. The tweet stated, “This didn’t happen by accident. Because of the actions we took, last year we achieved the fastest economic growth in nearly four decades.”
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The first thing we must remind the president is that a recovery from a massive crisis is not “growth.” Unfortunately, this marketing tactic is not new. When Biden was vice president under Barack Obama, they always compared growth and jobs of the president’s tenure excluding the first year, 2009. Presidents tend to compare their figures favorably, but to talk about 2021 as the “fastest economic growth in nearly four decades” is misleading.
First, recovering the GDP after a massive crisis is not growth. After falling 3.5 percent, a 5.7 percent recovery is not “the fastest economic growth” in forty years. It is a bounce. Furthermore, when inventory build contributed a massive 4.9 percentage points to the 6.9 percent increase in real GDP of the fourth quarter, we should be cautious. This factor is likely to fade in the first quarter and points to slower growth in 2022.
Second, 2020 and 2021 saw the largest increase in federal debt in decades. After a $3.1 trillion deficit in 2020, the largest in history, and another historic record deficit in 2021 of $2.7 trillion, the United States’ economy has shown a much larger debt increase than GDP recovery. Current-dollar GDP increased by $2.10 trillion in 2021, to a level of $22.99 trillion, in contrast to a decrease of 2.2 percent, or $478.9 billion, in 2020. This means that the United States economy has barely grown at all after adjusting for the massive increase in debt.
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Supply chain disruptions and mitigation strategies – Raphaël Lafrogne-Joussier, Julien Martin, Isabelle Mejean
5 februari
Global supply chains have been central in economic and policy debates since the start of the Covid-19 pandemic. This column uses the first lockdown in China in 2020 to study how firms involved in global value chains can help mitigate the effects of supply disruptions. Using monthly data on French firms, it finds that inventory management helped firms mitigate the shock, but the geographic diversification of input sourcing did not. Governments may thus consider giving incentives to firms to depart from just-in-time production processes, especially for those engaged in the production of critical products.
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Today’s Fiat Dollar Standard Is Founded in Lies – Manuel Tacanho
5 februari
We live in the age of rampant (monetary and price) inflation, more frequent economic crises, chronic deficit spending, unpayable debt, and massive financial bubbles. That’s not accidental. That’s consequential.
This fact and the many economic, social, and even cultural consequences of our fiat money system remain largely unknown to the majority of people. The US dollar became a fiat currency by deceit and not due to the merit of fiat money or by free choice.
So much so that economist Jacques Rueff titled his book The Monetary Sin of the West (1971) in reference to the Bretton Woods gold exchange standard, which was not even a full fiat money system.
What is fiat money? you may ask. Essentially, it is an inconvertible or unbacked currency usually issued by the government/central bank. Fiat money is currency of unlimited supply.
The word fiat comes from Latin and means “let it be done,” used in the sense of a government order and decree. Another key word here is inconvertible. Notice that fiat emerged from paper currency no longer being redeemable for silver and gold.
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***Can a Nation Prosper as its Institutions Fail? – Charles Hugh Smith
1 februari
We are in effect so busy arranging the beach umbrellas per our instructions that we don’t notice the approaching tsunami.
Economists focus on what can be easily measured: sales, profits, prices, tax revenues, etc. Since the decay and failure of institutions isn’t easily quantified, this decay doesn’t register in the realm of economics. Since it isn’t measured, it doesn’t exist.
But institutional decay and failure is all too real, and it begs the question: how can a society and economy thrive if its core institutions fail? The short answer is they cannot thrive, as institutions are the foundations of the social and economic orders.
As I explain in my new book, Global Crisis, National Renewal, the conventional view has a naive faith that “great leaders” can reverse institutional rot. This faith overlooks the systemic sources of institutional decay and failure which are outlined in the graphic below, The Lifecycle of Bureaucracy, a.k.a. institutions.
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The Fed Is Trapped: It Has No Room to Taper or Raise Rates – André Marques
1 februari
Last November, the Federal Reserve System announced tapering (a gradual reduction of the central bank’s monthly asset purchases to the point of ending the asset purchase program, which means that the Fed would stop increasing its balance sheet). In December, it announced another decrease in monthly asset purchases.
And in the last Federal Open Market Committee meeting, held on December 14–15 and published in January, the committee participants spoke not only of finishing the tapering, but also of a faster rate hiking. In addition, participants spoke of reducing the Fed’s balance sheet (selling the assets it holds, shrinking its balance sheet and the monetary base, M0) while it is hiking rates or after. This is the process called quantitative tightening, which is the opposite of quantitative easing, an expansion of the Fed’s balance sheet through asset purchases (expanding the monetary base).
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Gravity at 60: A celebration of the workhorse model of trade – Yoto Yotov
30 januari
This year marks the 60th anniversary of the workhorse model of trade – the gravity equation. This column celebrates the anniversary by addressing some misconceptions about gravity and by tracing its evolution from an intuitive a-theoretical application to an estimating computable general equilibrium model that can be nested in more complex frameworks.
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Why Gold Is More Expensive than Bread – Frank Shostak
5 februari
Why do individuals assign a greater value to gold than to bread, when bread seems to be more “useful” than gold? To provide an answer to this question economists refer to the law of diminishing marginal utility. The concept of diminishing marginal utility is the essential building block of economics. There is, however, a difference in the way this law is discussed by mainstream economics and the Austrian school of economics.
The popular economics explains this law in terms of the satisfaction that one derives from consuming a particular good. For instance, an individual may derive vast satisfaction from consuming one cone of ice cream. The satisfaction he will derive from consuming a second cone might also be large but not as large as the satisfaction derived from the first cone. The satisfaction from the consumption of a third cone is likely to diminish further, and so on.1
From this economists have concluded that the more of any good we consume in a given period, the less satisfaction, or utility, we derive from each additional unit. From this it is established that if the satisfaction from the additional unit of a good declines as we consume more and more of it, the price that we are willing to pay per unit of the good is also going to decline.
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Global Tightening amid Raging Inflation: February Update – Wolf Richter
3 februari
Brazil and Russia caught up via shock-and-awe rate hikes. But most central banks fell further behind. Then there are the reckless laggards.
The Bank of England today, February 3, started QT (Quantitative Tightening, the opposite of QE) and raised its policy rate by 25 basis points, to 0.50%, the second hike in a row, after having raised by 15 basis points at its December meeting. The hawkish part was how it happened: A bare majority of five members of the Monetary Policy Committee voted for the 25-basis-point hike, while four members voted for a 50-basis-point hike!
The BOE voted unanimously to start QT by reducing its holdings of government bonds by allowing maturing bonds to roll off without replacement, and by selling its corporate bonds outright. In terms of the corporate bonds, the BOE is following in the Fed’s footsteps which sold its corporate bond holdings entirely by November 2021.
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Could Blockchain Technology Help End Fractional Reserve Banking? – Sammy Cartagena
29 januari
Fractional reserve banking has existed throughout history, long before the creation of government currencies or central banks. Once monetary custodians realized that not all depositors would demand repayment simultaneously, the practice of lending out deposits in excess of reserves became commonplace. This raises the question of how a system of full reserves would operate in practice. Although authors have laid out plans for establishing a full-reserve banking system using gold or fiat currencies, the decentralized and digital nature of blockchain technology provides some inherent advantages in implementing a full-reserve system.
When Nixon officially ended the convertibility of the United States dollar into gold in October 1971, the dollar lost its last remaining tie to a commodity money. This ushered in the power of the central bank to create a near-unlimited amount of currency, since the dollar no longer faced redeemability into a scarce good. The danger of bank runs thus became virtually nonexistent, since more dollars could always be printed to meet outstanding withdrawals.
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Creative destruction during crises: An opportunity for a cleaner energy mix – Pragyan Deb, Davide Furceri, Jonathan D. Ostry, Nour Tawk
31 januari
The COVID-19 recession reduced overall energy demand, but electricity generation from renewable sources increased and has been resilient. Based on data from a panel of 176 countries over the period 1965 to 2019, this column shows that recessions result in a permanent, albeit small, increase in energy efficiency and in the share of renewables in total electricity. These effects are stronger when complemented with environmental and energy policies to incentivise and hasten the transition towards renewable energy sources.
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Incredibly Spiking US National Debt Hits Monstrous $30 Trillion – Wolf Richter
2 februari
Trillions whooshing by so fast they’re hard to even see. And now the TGA is spiking again.
The incredibly spiking US gross national debt hit the big one: $30 trillion. That’s the amount the government owes and has issued in Treasury securities that are outstanding as of January 31. Since March 2020, the US gross national debt has spiked by a monstrous 27%, or by $6.5 trillion. Over the past 12 months, during the strongest economic growth since 1984, the national debt has spiked by 2.2 trillion.
The flat spots depict the uniquely American political charade of the Debt Ceiling, the periods when the gross national debt bounced into the Debt Ceiling as set by Congress. These flat spots are the days when everyone in Congress is trying to hijack the Debt Ceiling law in order to arm-twist the other side into approving their favorite priorities! Hahahaha, Congress, thank you for that hilarious charade.
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Infrastructure does not mean roads and bridges, apparently – John H. Cochrane
31 januari
Congress passed a much-ballyhooed “infrastructure” bill. “Roads and bridges.” Well, not much of it went to roads and bridges in the first place, only $110 billion out of $1.2 Trillion went to roads, bridges “and investments in other major transportation programs.”
But the The Federal Highway Administration (FHWA) decides where to spend the money. The The Wall Street Journal reports
…Deputy Administrator Stephanie Pollack advised staff on the types of projects they should give the red light.
According to the memo, proposals should be sent to the bottom of the pile if they “add new general purpose travel lanes serving single occupancy vehicles.” She means cars. That includes construction of new roads and highways, or expansions of existing ones.
In short, how many roads and bridges do you get in the $1.2 trillion dollar bill? Zero.
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Rising Rents and Cheap Money Flowing – So Apartment Prices Are Soaring – Doug French
1 februari
Fannie Mae announced last week that it provided nearly $70 billion in multifamily financing last year. The government lender crowed about $9.6 billion of the total being for affordable housing projects and $13.5 billion financing projects deemed “green and sustainable” units. This helped Fannie “grow its Multifamily Green MBS (mortgage backed securities) issuance to more than $100 billion last year,” according to the press release.
Fannie Mae apartment loan pricing and terms are attractive: the five-year fixed rate starts at 2.74 percent to the thirty-year fixed starting at 3.81 percent. Thirty-year amortizations are available and in some cases interest-only loans can be negotiated, as well as nonrecourse loans. The larger point is that with the Consumer Price Index at 7 percent in December, the real interest rate on these Fannie Mae loans is negative.
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European public goods: How we can supply more – Marco Buti, George Papaconstantinou
31 januari
In an environment of increased interconnectedness and heightened vulnerability, there seems to be an objective need for more European public goods. This column argues that there exists a mismatch between the need and popular demand for such public goods, especially after the pandemic, and a continued reluctance to increase their supply and finance them. In this context, it offers a simple analytical framework for analysing and potentially increasing the supply of European public goods by operating on changing political incentives and institutional dynamics.
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***Today’s Jobs Report Solves Some Headscratcher Mysteries – Wolf Richter
4 februari
The Pandemic wreaked havoc on seasonal patterns; and “seasonally adjusted” numbers often misfired. We knew that since mid-2020. Today some of it was resolved.
The employment report, released today by the Bureau of Labor Statistics, was a shocker in the positive sense. Markets had counted on terrible numbers to derail the Fed’s tightening strategy and derail the rate hike in March. But when the strong numbers came out, yields spiked, with the 10-year yield up 12 basis points to hit 1.93%, the highest since December 2019.
And there was another thing. The pandemic has wreaked havoc on the normal seasonal changes in the US economy: Home sales, retail sales, initial unemployment claims, the number of people who are working, etc. These economic activities fluctuate hugely and predictably with the seasons every year.
Seasonal adjustments, based on the normal seasonal patterns, are designed to smooth out the data and allow for month-to-month comparison. This worked fairly well until it didn’t: When the pandemic screwed up the normal seasonality of the economy.
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No Wonder the Market Is Skittish – Charles Hugh Smith
26 januari
The equity, real estate and bond markets all rode the coattails of the Fed’s ZIRP and easy-money liqudiity tsunami for the past 13 years. As those subside, what’s left to drive assets higher?
No wonder the market is skittish:
1. Every time the Federal Reserve began to taper quantitative easing / open spigot of liquidity over the past decade, reduce its balance sheet or raise rates from near-zero, the market plummeted (“taper tantrum”) and the Fed stopped tightening and returned to easy-money expansion.
2. Now the Fed is boxed in by inflation–it can’t continue the bubblicious easy-money policies, nor does it have any room left to lower rates due to its pinning interest rates to near-zero for years.
3. So market participants (a.k.a. punters) are nervously wondering: can the U.S. economy and the Fed’s asset bubbles survive higher rates and the spigot of liquidity being turned off?
4. The market is also wondering if the economy can survive the pricking of the “everything” asset bubbles in stocks, bonds, real estate, etc. as interest rates rise and liquidity is withdrawn. What’s left of “growth” once the top 10% no longer see their wealth expand every month like clockwork?
5. The unprecedented expansion of asset valuations driven by expansions of credit and liquidity (i.e. low-cost credit chasing scarce assets) has greatly increased the wealth of the top 10% (especially the wealth of the top 0.1% and top 1%). Since the top 10% collect about half of all income and account for roughly half of all consumer spending, the “wealth effect” generated by ever-rising asset valuations has underpinned “growth” in both asset purchases and consumption.
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Discovering the ‘true’ Schumpeter: New insights on the finance and growth nexus – Peter Bofinger, Lisa Geißendörfer, Thomas Haas, Fabian Mayer
3 februari
Joseph Schumpeter made pioneering contributions to economic theory on the relationship between the financial system and economic growth. However, the economic literature has often misinterpreted his work, particularly on the importance of banks and liquidity creation for development. This column argues that a correct interpretation of Schumpeter helps resolve many empirical puzzles which have emerged in the last decades. Using a panel of 43 countries, it finds strong positive effects of credit growth on GDP growth and little effect of saving on GDP and credit growth.
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Quantitative Tightening Won’t Stop Price Inflation – Joseph Solis-Mullen
1 februari
Markets reacted badly last week to Federal Reserve chairman Jerome Powell’s statements outlining the Fed’s initial forecast for the coming year. With inflation clearly no longer being “transitory,” with the Consumer Price Index accelerating to 7 percent in December, Powell has turned increasingly hawkish. Apart from seeming to confirm a series of rate hikes for 2022, markets were also shaken by Powell’s confirmation that the Fed would begin reversing its bond-buying program in March. The opposite of quantitative easing (QE), quantitative tightening (QT) will see the Fed begin reducing its now more than eight-trillion-dollar balance sheet. The reason for the move, as San Francisco Fed boss Mary Daly put it, is to give the Fed more ability to fight inflation without resorting to multiple 2022 rate hikes.
With experts increasingly dubious of the US economy’s ability to grow in a higher-interest-rate environment, beginning QT in March would seem, on the surface, an obvious thing to do, the reasoning being that as QE seems to help hold down the yields of long-term bonds, doing the opposite should cause them to rise. This is true only in theory, however, and several considerations cast doubt on the enterprise.
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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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