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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Measuring the risk of a euro area breakup -Christian Bayer, Chi Hyun Kim, Alexander Kriwoluzky
6 september
Investors fret that Italy may exit the euro. One reason to worry is redenomination risk, driven by the prospect of a country allowing a new currency to depreciate against the euro. This column compares two types of Italian bond yield curves to estimate such risk, and finds that the yield premium due to it peaked at 7% during the sovereign debt crisis. Redenomination risk also affects interest rates in strong economies, which implies a redistribution between savers and borrowers throughout the euro area.
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Fed Said to Be Less Prepared For Crisis Than 10 Years Ago – Tyler Durden
7 september
A group of current and former policymakers and academics in the financial industry that comprise the “Group of 30” – a financial industry working group that includes names like Mario Draghi and Mark Carney and which is the “who’s who” of economists and experts that led the world into the last financial crisis – has come to the same conclusion that the many in the “fringes of economic thought” have been warning about for the last decade: the Fed is going to be in worse off shape to fight the next major crisis than they were in 2008.
“Some of the tools to fight the hopefully rare but extreme crises in the future have been weakened,” Tim Geithner, a distinguished Group of 30 member, told Bloomberg.
While many of our readers have likely arrived at that same conclusion on their own, the reasoning by the Group of 30 seems to differ somewhat from conventional skepticism. More importantly, how could the world be “unprepared” nearly a decade after the great recession, and with new reforms being put into place as a result of the financial crisis?
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Governments Default on Debt More than You Think – Daniel Lacalle
5 september
In this era of monetary fiction, one tends to read all types of undocumented and misguided views on monetary policy. However, if there is one that really is infuriating: MMT science fiction.
One of its main principles is based on a fallacy: “A country with monetary sovereignty can issue all the debt it needs without default risk.”
First, it is untrue. A report by David Beers at the Bank Of Canada has identified 27 sovereigns involved in local currency defaults between 1960 and 2016 (database here).
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Italy’s capital flight: 2011, 2016, and early 2018 – Sylvia Merler
31 augustus
International investors have been repositioning vis-à-vis Italy, after the new government took office in early May. We compare this summer turmoil to previous episodes of capital outflows. Outflows from Italian portfolio investments in May and June have exceeded the outflows recorded during the summer of 2011, and are already halfway to matching the cumulated total outflows recorded during the entire 2011-12 crisis.
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Why Rising Interest Rates Are Not Always Good For Banks – Chris Whalen
3 september
It is axiomatic among investors that rising interest rates are good for banks in terms of enhancing earnings. But this is not necessarily true. In fact, banks make money on widening interest rate and credit spreads, namely the different between the cost of money and the return on loans and investments. Rising rates can be a mixed blessing.
In the 1980s, sharply higher interest rates during the term of Federal Reserve Chairman Paul Volcker essentially destroyed the housing finance sector in the US. Fixed rate mortgages and rising interest expenses led to widespread insolvencies in the savings & loan sector that cost US taxpayers hundreds of billions in losses. Today the situation facing banks in the US is equally dire yet is largely unrecognized by the financial markets and policy makers.
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Artificial Booms and the Theory of “Forced Saving”  – Jesús Huerta de Soto
4 september
In the broad sense of the term, “forced saving” arises whenever there is an increase in the quantity of money in circulation or an expansion of bank credit (unbacked by voluntary saving) which is injected into the economic system at a specific point. If the money or credit were evenly distributed among all economic agents, no “expansionary” effect would appear, except the decrease in the purchasing power of the monetary unit in proportion to the rise in the quantity of money. However if the new money enters the market at certain specific points, as always occurs, then in reality a relatively small number of economic agents initially receive the new loans. Thus these economic agents temporarily enjoy greater purchasing power, given that they possess a larger number of monetary units with which to buy goods and services at market prices that still have not felt the full impact of the inflation and therefore have not yet risen. Hence the process gives rise to a redistribution of income in favor of those who first receive the new injections or doses of monetary units, to the detriment of the rest of society, who find that with the same monetary income, the prices of goods and services begin to go up. “Forced saving” affects this second group of economic agents (the majority), since their monetary income grows at a slower rate than prices, and they are therefore obliged to reduce their consumption, other things being equal.
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The Fed’s QE Unwind Hits $250 Billion – Wolf Richter
6 september
Here’s my math when this “balance sheet normalization” will end.
In August, the Federal Reserve was supposed to shed up to $24 billion in Treasury securities and up to $16 billion in Mortgage Backed Securities (MBS), for a total of $40 billion, according to its QE-unwind plan – or “balance sheet normalization.” The QE unwind, which started in October 2017, is still in ramp-up mode, where the amounts increase each quarter (somewhat symmetrical to the QE declines during the “Taper”). The acceleration to the current pace occurred in July. So how did it go in August?
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Why Fiscal Stimulus Doesn’t Create Real Economic Growth – Frank Shostak
4 september
For most experts a key factor that policy makers should be watching is the gap between the actual real output and the potential real output. The potential output is the maximum output that the economy could attain if all the resources are used efficiently.
The gap is labeled as the output gap. In June this year the output gap – expressed in percentage terms – stood at 3.8% against 3.25% in March and 2.75% in June last year.
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What works (and what doesn’t) for smart specialisation strategies in Italy’s Mezzogiorno – Riccardo Crescenzi, Guido de Blasio, Mara Giua
3 september
The smart specialisation strategy quickly became popular in the European policy market as a new approach to innovation policy. However, to date there has been little empirical evidence on the effectiveness of the approach. This column sheds light on the question by examining a precursor programme of subsidies in Italy between 2007 and 2013. Results suggest that collaborations that are not the result of an open and unconstrained search for the best partners – that is, those that are induced by public policy incentives – fail to generate positive impacts.
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***After 10 Years of “Recovery,” What Are Central Banks So Afraid Of? – Charles Hugh Smith
6 september
If the world’s economies still need central bank life support to survive, they aren’t healthy–they’re barely clinging to life.
The “recovery”/Bull Market is in its 10th year, and yet central banks are still tiptoeing around as if the tiniest misstep will cause the whole shebang to shatter: what are they so afraid of? The cognitive dissonance / crazy-making is off the charts:
On the one hand, central banks are still pursuing unprecedented stimulus via historically low interest rates, liquidity and easing the creation of credit on a vast scale. Some central banks continue to buy assets such as stocks and bonds to directly prop up the “market.” (If assets don’t actually trade freely, is it even a market?)
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***Mexico’s Central Bank Just Broke with the War on Cash – Don Quijones
2 september
A strange thing just happened in Mexico. The Bank of Mexico (Banxico), announced that it is considering launching a 2,000 peso note (ca. $105), double the highest denomination note currently in circulation. It’s also considering doing away with Mexico’s lowest denomination 20 peso bill (ca. $1.05), which will be replaced by a coin with the same face value.
Not everyone’s happy about the proposal, which forms part of a range of measures aimed at updating Mexico’s currency notes. Miguel González Ibarra, director of the Center for Financial Studies and Public Finance of the National Autonomous University of Mexico, said that introducing a higher denomination bill flies in the face of the broad trend among advanced economies to weed out such notes.
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R.I.P. Chinese Exceptionalism? – Arvind Subramanian, Josh Felman
6 september
After decades of strong and steady growth, China has developed a reputation for economic resiliency, even as it piles up ever more domestic debt. But the prospect of declining exports, alongside a weakening currency, could derail its debt-defying trajectory.
NEW DELHI – From Argentina to Turkey and from South Africa to Indonesia, emerging markets are once again being roiled by financial turbulence. But let us not lose sight of the biggest and potentially most problematic of them all: China.
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Chinese imports and domestic employment across 18 OECD countries – Stefan Thewissen, Olaf van Vliet
6 september
The recent revival of protectionism has prompted further interests in the domestic employment effects of imports, in particular from China. This column examines the association between Chinese imports and domestic employment effects in 17 sectors across 18 OECD countries with diverse labour market institutions. The results indicate that employment fell in sectors that are more exposed to imports from China, especially among low-skilled workers.
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It’s not just Venezuela embracing crypto in Latin America – Michael Kern
8 september
From bringing financial services to the bankless to funding for startups, crypto is growing in Latin America, and not just because of hyperinflation in Argentina and Venezuela.
The case for crypto is growing in Latin America, and not just because of hyperinflation in Argentina and Venezuela. From bringing financial services to the bankless to funding for startups which has been notoriously difficult to obtain in the past, there’s a quiet transformation under way and its being fueled by crypto.
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Fed Nixes Narrow Bank – John H. Cochrane
5 september
A narrow bank would be a great thing. A narrow bank takes deposits, and invests 100% of the money in interest-paying reserves at the Fed. (The Fed, in turn, mostly invests in US treasuries and agency securities.)
A narrow bank cannot fail*. It cannot lose money on its assets. A narrow bank cannot suffer a run. If people want their money back, they can all have it, instantly. A narrow bank needs essentially no asset risk regulation, stress tests, or anything else.
A narrow bank fills an important niche. Individuals can have federally insured bank accounts which are (mostly) safe. But large businesses need to handle cash way above the limits of deposit insurance. For that reason, they invest in repurchase agreements, short-term commercial paper, and all the other forms of short term debt that blew up in the 2008 financial crisis. These are safer than bank accounts, but, as we saw, not completely safe. A narrow bank is completely safe. And with the option of a narrow bank, the only reason for companies to invest in these other arrangements is to try to harvest a little more interest. Regulators can feel a lot more confident shutting down run-prone alternatives if a narrow bank is widely available.
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Risks and returns of cryptocurrencies – Yukun Liu, Aleh Tsyvinski
6 september
Cryptocurrencies have received a substantial amount of attention over the past year. This column uses textbook asset-pricing methods to explore how cryptocurrency returns compare with those of traditional asset classes. Results show that cryptocurrency returns do not co-move with traditional assets, but that some cryptocurrency-specific factors – namely, momentum and investor attention – strongly predict their performance.
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The Pension Crisis Is Bigger Than The World’s 20 Largest Economies – Simon Black
7 september
If your retirement plans consist entirely of that pension you’ve been promised, it’s time to start looking elsewhere.
As you probably know, pensions are giant pools of capital responsible for paying out retirement benefits to workers.
And right now many pension funds around the world simply don’t have enough assets to cover the retirement obligations they owe to millions of workers.
In the US alone, federal, state, and local governments, pensions are about $7 TRILLION short of the funding they need to pay out all the benefits they’ve promised.
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Be Careful What You Wish For: Weak Mass-Tourism Threatens Spain’s Five-Year Economic Recovery – Don Quijones
6 september
It is impossible to overstate the importance of tourism to Spain’s economy.
When the hordes of tourists left Spanish beaches, resorts and cities at the end of August, there was a larger cull of local jobs than usual. Average social security affiliation fell during the month by 277,500 to 18.535 million people — a 1.47% drop. August is traditionally a poor month for the Spanish labor market, since at the end of it many summer jobs get axed in the tourism and retail sectors. This is one of the drawbacks when a national economy depends so heavily on tourism, which notoriously provides short-term, poorly paid jobs that tend to disappear the moment the tourists head home.
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When Up Is Down: Why The Jump In Hourly Earnings Confirms Economic Slowdown – Economic Cycle Research Institute
7 september
Earnings growth has risen for an unfortunate reason: growth in hours has fallen faster than pay growth. The chart below shows income growth slowing, and growth in hours worked slowing even faster.
Contrary to popular belief, such a slowdown is not a credible signal of an inflation upturn. And if the jump in wage growth pushes the Fed to be more hawkish, it could actually worsen the slowdown.
As we first publicly explained in May 2014, since AHE is the ratio of total weekly pay to total weekly hours, it’s useful to look at the growth rates of each, shown in the lower panel of the chart (purple and gold lines, respectively), which tells the real story. Following the post-hurricane pop, year-over-year payroll growth has edged up, while yoy hours growth has actually fallen back to its lowest reading since January 2017, excluding its September low, which was due to the hit from the hurricanes. So, rising yoy AHE growth may seem like a good thing, but in this case it is actually confirms the slowdown in economic growth that’s starting to take hold.
The bottom line is that the latest pop in overall AHE growth is not a sign of economic strength or inflation.
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