Economische aanraders 13-11-2016

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.

This is “Unusual Outside a Recession Period”: New York Fed Grapples with Weak Demand – Wolf Richter
7 november

The dollar has strengthened against other currencies since mid-2014 as the Fed was tapering QE Infinity out of existence, and as it began flip-flopping about rate increases. Dollar strength should have done two things in terms of international trade:
Weaken exports as US goods would become less competitive for buyers using other currencies;
Strengthen imports as imported goods would be cheaper compared to US-made goods.
The first has happened. But the second has not happened: Imports have been in a down-trend since mid-2015. This is something that should not happen when the dollar is strong, and it has flummoxed the folks at the New York Fed’s Liberty Street Economics:
Why President Trump Will Fumigate the Fed – Tommy Behnke
11 november

Starting in January, President-elect Donald Trump will have a unique opportunity to pack the Federal Reserve with hard money officials.
There are currently two open Board of Governors seats, which will most likely not be filled before the end of President Obama’s tenure. Additionally, both Chair Janet Yellen and Vice-Chair Stanley Fischer’s terms will be up by 2018. Crunch the numbers and you will see that Trump has the opportunity to replace a majority of the Board of Governors and a third of the FOMC with monetary policy hawks during his presidency.
Call me crazy, but assuming that the Republican-controlled House and Senate stands behind him, I believe that Trump just may shock the financial world by shifting this country’s monetary policy in a more hawkish direction.
“The Economic Peace Is Over” – Get Ready, Change Is Upon Us – Chris Martenson
11 november

“After four years of warfare that tore the world apart like never before, a peace was finally reached. But it was a peace which one man in particular vociferously condemned — and that man was John Maynard Keynes.
In just two months, Keynes wrote the book that would make him a household name around the world — The Economic Consequences of the Peace.
In the book, Keynes was highly critical of the deal struck at Versailles, which he felt sure would lead to further conflict in Europe — describing the agreement as a “Carthaginian peace” — and with the passing of a surprisingly short period of time, he would be proven correct.”

~ Grant Williams in The Economic Consequences of Peace

After WWI, a particularly noxious set of treaties and economic reparations agreements were put in place that all but guaranteed a future WWII. Mr. Keynes sniffed that out and, sadly, was proven correct.
The lesson from this is that, at certain times, it’s really not that hard to predict “what” is going to happen next after disastrously short-sighted and self-interested policies are enacted. Predicting the “when”, with precision, is much trickier. But obvious misguided economic policies are destined to have a limited period of apparent (but false) prosperity, after which they end with a nasty Bang!.
Despite what Everyone Thinks, Biggest Threat to Mexico’s Economy isn’t Trump but Pemex – Don Quijones
6 november

The fear of a Donald Trump victory has reached fever pitch in Mexico this weekend, as the nation’s economists pontificate on the potentially devastating effects such an outcome would have on both the country’s currency and its broader economy. In recent weeks, Mexican financial authorities even ordered local banks to stress-test the potential impact on their balance sheets of Trump winning the U.S. presidential election.
They have good reason to be concerned. If Trump wins the election and actually honors some of his pledges, particularly those regarding trade, the immediate fallout for Mexico is likely to be brutal. After all, a staggering 80% of Mexico’s exports go to the U.S. That’s similar to the level of dependence that the Cuban economy had on its trade with the Soviet Union at the height of the Cold War.
Monetary policy at the time of elections – Sylvia Merler
7 november

What’s at stake: At this week’s meeting, the Federal Reserve left interest rates unchanged. While this was largely expected, the economic blogosphere has been discussing whether and to what extent this is linked to the election, and what can be expected for the future.
Tim Duy’s Fed Watch says that, as expected, the Federal Reserve left policy unchanged this month and the statement itself was largely unchanged as well. The near term inflation outlook improved from September to November, and with the year-over-year impacts of oil prices falling out of the data, headline inflation will track back upwards, which is not a big surprise. With regards to the timing of the next move, Duy argues that the language suggests conditions are moving in the right direction, but the Fed is still waiting for some “further” evidence. A continuation of recent trends will likely be sufficient as the “further” evidence needed to justify a rate hike in December.
The Looming Bubble in Long-Term Debt – Mark Tiberius
10 november

In the aftermath of the financial crisis of 2007–2009, analysts and prognosticators have constantly argued over the next big bubble. Will it be in auto loans, in equities, government bonds, or even in housing again? However, the biggest risk facing financial markets may be the financial asset duration bubble. Since 2009, large institutions including central banks, sovereign wealth funds, pension funds, and insurance companies have acquired longer-dated assets to achieve needed returns on yield. Years of monetary policy stimulus from the world’s major central banks has suppressed interest rates worldwide to all-time lows. While this may be viewed as a stimulating policy for borrowers, it creates serious issues for financial institutions with required levels of investment returns and with future liabilities.
What is Duration Risk?
Pension funds and insurance companies invest in assets that pay a yield, which can include coupon payments on fixed income securities (like US Treasuries or corporate bonds) as well as price appreciation over time, in order to “fund” their future liabilities. A pension fund, for instance, must ensure that they achieve a certain level of returns (often as high as 7 percent) in order to fulfill the promises made to their employees when they retire. When interest rates fall, the present value of these unfunded obligations starts to rise — because they are “discounting” this future obligation with the market rate of interest. The lower the interest rate used for the discounting, the higher the value of the liability (or asset).
Is Trump’s $1 Trillion Privately Funded Infrastructure Plan Feasible? – Tyler Durden
12 november

President-elect Trump has made a $1 trillion infrastructure investment one of his first priorities as president, promising in his victory speech early Wednesday morning to “rebuild our highways, bridges, tunnels, airports, schools, hospitals.” As Goldman’s economics research team points out, Trump’s plan, as detailed in a report released by his economic advisers Wilbur Ross and Peter Navarro, calls for $1 trillion of spending over 10 years to be funded largely by private sources which would be repaid with tax credits and usage taxes (i.e. toll roads).
His infrastructure plan calls for up to $1 trillion in additional spending over ten years, most of it privately financed. A memo released in late October by Mr. Trump’s economic advisors Wilbur Ross and Peter Navarro detailed a plan to finance up to $1 trillion in infrastructure spending over ten years, equal to $100bn per year or about 0.5% of GDP. We previously estimated that a spending boost of this size would reduce the unemployment rate by about 0.3pp and raise inflation a touch, leading the Fed to eventually hike one or two more times by 2019 relative to a baseline without the infrastructure package.
The plan described by Ross and Navarro would be largely privately financed, but encouraged by tax credits. The plan would seek to incentivize the private sector to increase investment in infrastructure projects that would be supported by future usage fees, such as road tolls. Ross and Navarro suggest that 17% of the initial investments could be financed with equity and the remainder with debt. The government would then provide a tax credit equal to 82% of the equity to reduce the cost of financing. The large role of debt-financed private investment in Mr. Trump’s infrastructure plan implies that a significant increase in interest rates could be a hurdle for the plan’s feasibility.
While Trump would like to make his infrastructure plan a cornerstone of his presidency there are some questions about it’s feasibility. The first question is can such a massive infrastructure plan pass Congress. Trump’s financial plan, if the numbers actually pencil, would essentially sidestep the political funding squabbles by focusing mostly on private investment, a concept that both parties generally support. That said, as the Wall Street Journal points out, the plan could face some push back from Democrats who have been pushing for more public funding.
***This is How Consumers Turn into Debt Slaves – Wolf Richter
8 november

Consumer debt rose by $19.3 billion in September to $3.71 trillion, another record in a five-year series of records, the Federal Reserve’s Board of Governors reported on Monday. Consumer debt is up 6% from a year ago, at a time when wages are barely creeping up and when consumer spending rose only 2.4% over the same period.
This follows the elegant principle of borrowing ever more to produce smaller and smaller gains in spending and economic growth. Which is a highly sustainable economic model with enormous future potential, according to the Fed.
Consumer debt – the Fed uses “consumer credit,” which is the same thing but sounds a lot less onerous – includes student loans, auto loans, and revolving credit, such as credit cards and lines of credit. But it does not include mortgages.
German Council of Economic Experts’ view of ECB policy: Results of the CFM–CEPR Survey – Wouter den Haan, Martin Ellison, Ethan Ilzetzki, Michael McMahon, Ricardo Reis
9 november

A recent report by the German Council of Economic Experts argues that the current monetary policy of the ECB is no longer appropriate and is masking structural problems in Eurozone countries. The November 2016 Centre for Macroeconomics and CEPR expert survey invited views on the report. More than three-quarters of respondents disagree that ECB monetary policy should become less accommodating, and respondents also disagree that ECB policy is masking structural reforms. The panel is divided, however, on whether ECB policy is making implementation of structural reforms less likely.
The Trouble With Politics – Llewellyn H. Rockwell Jr.
8 november

Politics is of its very nature biased in favor of intervention and planning. Even in its “minarchist” or “night-watchman” version, politics is based at root on the idea that some decisions must be made coercively and imposed on unwilling minorities — or even majorities, as the case may be. This is contrary to the principle we observe in private life every day: the consent of both parties is necessary for a transaction to take place.
The state never stays “limited” in the long or even medium run, as we’ve seen for ourselves, and before long it worms its way throughout civil society. Once it becomes entrenched in some area of social life that had previously been managed by voluntary means, people grow accustomed to the state’s new role, even coming to view it as indispensable. The spirit of spontaneous, voluntary cooperation therefore atrophies and dies. This, in turn, is cited as justification for still further state interference, and the cycle continues.
Saving China’s stock market – Yi Huang, Jianjun Miao, Pengfei Wang
8 november

The Chinese Shanghai Stock Exchange Composite Index dropped by a third in mid-2015, wiping out billions in share value. One of the responses of the Chinese government was to directly participate in the stock market. This column assesses the costs and benefits of this intervention, finding that the resulting gains amounted to about 5% of Chinese GDP. The value was created not just from increased equity and investor confidence, but also from increased liquidity and reduced probability of default for listed firms.
3 Problems with Protectionism – Phillip Parrish
7 november

2016 is shaping up to be “the Year of Protectionism” in American politics. Indeed, during the second presidential debate this year, in a race to show which candidate was more protectionist, one candidate (Trump) threatens to impose tariffs on foreign competitors, while the other candidate (Clinton) accused the first candidate of buying metal that has been “dumped” in America by foreign firms.
It’s easy to see why the issue is popular. “Protecting” American firms — and presumably, their workers — from foreign competition sounds like a great idea. After all, what patriotic American wants to see Americans lose their jobs to foreigners overseas? While arguments like these are used to rally the citizens and get them to support protectionist policies, these arguments ignore the fact that protectionist policies always distort the economy at the expense of consumers. As Murray Rothbard explained, protectionism harms the consumer by limiting competition, which benefits the “inefficient” domestic firms that “cannot make it in a free and unhampered market”:
***“There’s Chaos Everywhere” – Indians Angry As ATMs Run Dry After Cash Ban – Tyler Durden
12 november

The blowback from the world’s latest strike in the war on cash is unraveling fast in India. This week’s decision by PM Modi to ban some high-denomination banknotes (on the premise of fighting corruption) has left “chaos everywhere” according to one official who accused the prmeier of wreaking havoc on the poorest Indians. As Reuters reports, nearly half of India’s 202,000 ATMs were shut on Friday and those that operated quickly ran out of the new notes as scores of people descended upon them.

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.