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.

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The Chinese debt time bomb – Leith van Onselen
6 juli
Fairfax’s Matt Wade is the latest to warn on China’s debt time bomb:
Many thousands of Australian jobs depend on the health of the Chinese economy…
For some years now China’s economic growth has been underpinned by an explosion in corporate lending. China has accounted for half – yes half – of all new credit created globally since 2005 according to the New York Federal Reserve. That’s a huge share for an economy that now only accounts for about 15 per cent of the global economy.
Alarm bells rang last August when the International Monetary Fund pointed out the trajectory of credit growth in China was eerily similar to countries that experienced painful post-debt boom adjustments in the recent past. This includes Japan in the 1980s, Thailand prior to Asian Financial Crisis and Spain prior to the European debt crisis.
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Financial “Collateral Damage” Highlights China’s and Fed’s Impossible Task – Mike Shedlock
7 juli
Variant Perception notes China Broad Credit Growth Slows to Zero. The side effect is a huge amount of collateral damage.

The recent tightening of credit we have seen in China is primarily aimed at clamping down on shadow financing. Wealth management products have rapidly grown in size, from only 8% of total banking deposits in 2012 to over 20% today.
The top chart shows China’s banks’ claims on non-banks, which is where a lot of shadow financing shows up. As we can see, growth in this category has fallen precipitously from 70% YoY to 20% today.
However, there is collateral damage from this tightening. For one, bank-lending rates are starting to rise as their cost of funding rises (bottom-left chart). Policymakers in China want to confine the rise in rates in to the interbank market, but this a next-to-impossible task. Too great a rise in lending rates would feed negatively into the real economy.
Moreover, as the bottom-right chart shows, tightening has led to broad credit growth falling to near to 0% on a 3-month basis. A negative second derivative in credit must be watched for any inhibitive effects it may have on economic growth – especially in a country so heavily credit-dependent such as China. A negative first derivative in credit, as we are on the cusp of today, leaves economic growth even more fragile.

Impossible Task
I don’t agree with VP analysis on everything, but I do agree on most things. I find this report spot-on.
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Does a Falling Money Supply Cause Recessions? – Frank Shostak
7 juli
In his writings, Milton Friedman blamed central bank policies for causing the Great Depression. According to Friedman, the Federal Reserve failed to pump enough reserves into the banking system to prevent a collapse in the money stock (see Free to Choose). In response to this failure, Friedman argued the money stock M1, which stood at $28.264 billion in October 1929; fell to $19.039 billion by April 1933 – a decline of almost 33%.
As a result of the fall in the money stock economic activity followed suit. By July 1932 year-on-year industrial production fell by over 31%. Also, year-on-year the consumer price index (CPI) had plunged. By October 1932, the CPI fell by 10.7%.
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Risk, return, and skill in the portfolios of the wealthy – Laurent Bach, Laurent Calvet, Paolo Sodini
7 juli
A growing literature conjectures that wealthy households earn higher average returns, which can further exacerbate wealth inequality. Using Swedish administrative data, this column shows that the wealthy indeed earn higher returns on their asset portfolios. These high returns are primarily due to high levels of compensated risk. Households at the top of the wealth distribution further exhibit highly heterogeneous investment performance due to high levels of idiosyncratic risk.
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***Consumers and Businesses Buckle under their Debts – Wolf Richter
6 juli
Commercial Chapter 11 bankruptcies – an effort to restructure the business, rather than liquidating it – jumped 16% year-over-year in June to 581 filings across the US. Total commercial bankruptcies of all types, by large corporations to tiny sole proprietorships, rose 2% year-over-year to 3,385 filings, according to the American Bankruptcy Institute. This was up 39% from June 2015 and up 18% from June 2014.
Commercial bankruptcies topped out at 9,004 in March 2010. By that time, credit conditions had been easing for a year, and liquidity was chasing yield. Not much later, even zombie companies – if they were large enough – were able to refinance their debts and borrow more to fund their operations and keep creditors happy. Bankruptcies fell sharply: In September 2015, they bottomed out at 2,217 filings.
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Visualizing “Conundrum 2.0”: This Is What The Fed Is Missing – Tyler Durden
8 juli
While it may come as a surprise to the current crop of 17-year-old hedge fund managers, the current period of persistently low long-term interest rates and plunging, near reocrd volatility in the face of a hawkish Fed and rising short-term rates, is hardly new: exactly the same happened from 2004 through 2006, despite the Fed’s continued rate hikes and jawboning. Alan Greenspan, the Fed’s Chair at the time, called this phenomenon a “conundrum” and blamed it on many things, including the global savings glut.
And, as the latest FOMC minutes demonstrated, the current period of especially loose financial conditions despite a projected 3 rate hikes in 2017 coupled with a balance sheet rolloff is likewise confusing the Fed. Deutsche Bank has called this “Conundrum 2.0.”
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The European banking union at three: A toddler with tantrums – Thorsten Beck
4 juli
The recent resolutions of the Spanish Banco Popular and of two smaller Italian banks – Veneto Vanca and Banca Popolare di Vicenza – can be seen as a first important test for the banking union. This column assesses the progress made over the past three years. It argues that a ‘never bailout’ rule is inefficient, especially if referring to legacy problems; that a crisis should be resolved before a new regulatory framework is put in place; that to avoid national solutions, we need to go to a complete banking union; and finally, that the process will take some time, and new institutions and regulations are only a small step.
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Mallaby, the Fed, and technocratic illusions – John H. Cochrane
5 juli
One of the frustrations — or perhaps challenges — of studying monetary economics and monetary policy is howFed talk and writing on economic mechanisms, causal channels, and effects of policies is far ahead of our actual, scientific knowledge. And writers outside the Fed go leaps and bounds beyond the Fed in advocating strong policies based on the latest stories.
A good example is Sebastian Mallaby, author of “The Man Who Knew: The Life & Times of Alan Greenspan,” who wrote last week in the Wall Street Journal Review, that the Fed should surprise us more.
His basic idea: the Fed should monitor asset prices; diagnose when a boom turns in to a bubble; and then actively suppress higher stock prices. And, in addition to interest rates, asset sales, “macro-prudential” regulation (telling banks to stop lending), the Fed should deliberately surprise markets more, adding volatility, in place of central banks’ and governments’ centuries-old quest (often illusory) to smooth asset prices.
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Getting rid of non-performing loans in Europe – Giorgio Barba Navaretti, Giacomo Calzolari, Alberto Pozzolo
6 juli
There is a growing awareness that non-performing loans generate risks of financial instability and constrain lending growth, and that coordinated action to solve the problem in Europe is both necessary and achievable. This column discusses proposals for state-supported vehicles, such as asset management companies, put forward by the main international organisations and prominent scholars to deal with the large backlog of non-performing loans. Part of this backlog will be resolved through market-based solutions, but due to market failures and capital shortages of critical banks, state-supported schemes are also deemed necessary.
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***Why the Next Recession will be a Doozie for Consumers – Wolf Richter
7 juli
The employment data released today beat expectations nicely. In June the economy added 222,000 civilian jobs. April and May numbers were revised up. In total, over the past three months, nonfarm payrolls rose by 581,000 jobs.
This data will do nothing to deter the Fed from proceeding with its tightening plans. The Fed should never have cut its policy rate to zero, or kept it down that long, and it should have never engaged in QE. However, acting as lender-of-last-resort when credit froze during the Financial Crisis — when even GE and IBM had trouble borrowing to meet payroll — was essential to keep the system from collapsing. These short-term loans were not part of QE and were paid back. But the hangover of QE is still on the Fed’s balance sheet.
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The spanning hypothesis and risk premia in long-term bonds – Michael D. Bauer, James Hamilton
7 juli
Several recent empirical papers have challenged the ‘spanning hypothesis’, which holds that the level, slope, and curvature of bond yield curves are sufficient to forecast returns and estimate bond risk premia This column argues that these studies suffer from a previously unrecognised standard error bias. Controlling for this bias, false positives are found to be between six and twelve times more likely, suggesting that the evidence against the spanning hypothesis is substantially less convincing than would appear from the studies.
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China Central Bank Advisor: “Bitcoin As A Currency Could Collapse Entire Economies” – Tyler Durden
7 juli
An advisor to China’s central bank, Sheng Songcheng, said that virtual currencies like bitcoin are assets but do not have the fundamental attributes needed to be a currency that could meet modern economic development needs. Speaking in an interview with financial magazine Yicai, the PBOC advisors said that the adoption of Bitcoin as a national currency by a country “could lead to its economic collapse.”
Sheng Songcheng, a counselor at the PBoC, dismissed digital currencies like bitcoin as assets that lack the value basis of a legitimate currency. “Bitcoin does not have the fundamental attributes needed to be a currency as it is a string of code generated by complex algorithms, and does not have inherent value… But I do not deny that virtual currencies have technical value and are a type of asset,” he said cited by Reuters. Apparently he is unaware that paper currencies – the type preferred by central bankers – is made of either strings of linen and paper or strings of 1s and 0s, and – while also having no inherent value – can be infinitely created out of thin air.
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Is This a Contrarian Buy Signal for the Commodities Bust? – Wolf Richter
9 juli
Here’s how commodities fared in the first half.
Some people might consider this development a flaming contrarian buy signal for commodities:
“Goldman Sachs Group Inc., the dominant commodities trader on Wall Street, is reviewing the direction of the business after a slump in the first half of the year,” Bloomberg reported, citing “people with knowledge of the matter.”
Will Goldman exit commodities trading?
In 2009, Goldman’s commodities trading revenues reached $3.4 billion. By 2016, it was down to $1.1 billion, “according to one of the people” cited by Bloomberg. In April, Goldman blamed its lousy first-quarter results in part on “significantly lower” net revenue from commodities trading. It pointed out at the time that client volumes suffered as crude oil volatility averaged the lowest level in over than two years.
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Testosterone and the Madness of Central Bankers – Doug French
6 juli
The stock market is at all-time highs. Argentina, a serial defaulter just sold $2.75 billion worth of debt with a 100-year maturity. Commercial real estate is booming again. All of this irrational exuberance while the world’s government’s are over indebted, economies are punk, and hostilities are prevalent everywhere.
Are memories too short? Or testosterone too high? Therese Huston, cognitive psychologist at Seattle University, writes for The New York Times,
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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.