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Economische aanraders 16-05-2021

Economische aanraders 0

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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Boom to Bust: How Inflation Turns into Deflation – Frank Shostak
12 mei

In order to understand the effects of inflation it is helpful to understand that inflation is not a general rise in prices as such, but an increase in the supply of money which then sets in motion a general increase in the prices of goods and services in terms of money.
Consider the case of a fixed stock of money. Whenever people increase their demand for some goods and services, money is going to be allocated toward these goods and services. In response, the prices of these goods and services are likely to increase—more money will be spent on them.
Since we have an unchanged stock of money, less money can now be allocated toward other goods and services. Given that the price of a good is the amount of money spent on the good, this means that the prices of other goods will decline, i.e., less money will be spent on them.
In order for there to be a general rise in prices, there must be an increase in the money stock. With more money and no change in the money demand, people can now allocate a greater amount of money toward all goods and services.
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***Why Wage Inflation Will Accelerate – Cahrles Hugh Smith
14 mei

The Fed has created trillions out of thin air to boost the speculative wealth of Wall Street, but it can’t print experienced workers willing to work for low wages.
The Federal Reserve is reassuring us daily that inflation is temporary, but allow me to assure you that wage inflation is just getting started and will accelerate rapidly. As I noted yesterday, the Fed can create currency out of thin and funnel it to financiers, but the Fed can’t create experienced, motivated workers out of thin air or entrepreneurs with the chops to launch and sustain real-world enterprises.
Let’s start with a funny little thing called competition, which has been pushing wages down for the past 50 years. Globalization means you’re competing with every other worker on the planet for jobs in tradable goods and services, and mass immigration and relatively high birth rates means there have been more potential workers than secure jobs.
Competition for paid work has been wonderful for global corporations, whose profits have soared five-fold thanks to labor arbitrage, also known as offshoring, where companies can pick and choose locales with the lowest cost labor.
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Biden Wants a Global Minimum Tax to Offset His Proposed Huge Corporate Tax Increase – Andrew Moran
15 mei

In the classic 1939 film, The Roaring Twenties, a desperate James Cagney tells Priscilla Lane, “You want the Brooklyn Bridge, all you gotta do is ask for it. If I can’t buy it, I’ll steal it.” Like a desperate lovesick puppy trying to force the object of his affection to fall in love with him, President Joe Biden has promised the American people the Brooklyn Bridge, relying on an elixir of higher taxes to carry out his plans. But suppose he fails to satisfy the two-thirds of Americans who endorse his spending plans. In that case, these folks might fall in love with the potential 2024 Republican presidential candidate who can deliver the goods of prosperity and growth. Biden might try everything under the sun to woo his crush and make sure he showers the love of his life with diamonds and pearls, even if it means appealing to the worst instincts of the globalists: confiscation.
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It’s Getting Serious: Dollar’s Purchasing Power Plunges Most since 2007. But it’s a Lot Worse than it Appears – Wolf Richter
12 mei

Fed officials, economists “surprised” by surge in CPI inflation, but we’ve seen it for months, including “scary-crazy” inflation in some corners.
The Consumer Price Index jumped 0.8% in April from March, after having jumped 0.6% in March from February – both the sharpest month-to-month jumps since 2009 – and after having jumped 0.4% in February, according to the Bureau of Labor Statistics today. For the three months combined, CPI has jumped by 1.7%, or by 7.0% “annualized.” So that’s what we’re looking at: 7% CPI inflation and accelerating.
Consumer price inflation is the politically correct way of saying the consumer dollar – everything denominated in dollars for consumers, such as their labor – is losing purchasing power. And the purchasing power of the “consumer dollar” plunged by 1.1% in April from March, or 12% “annualized,” according to BLS data. From record low to record low.
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***Corruption under austerity – Gianmarco Daniele, Tommaso Giommoni
10 mei

Austerity measures have been widely adopted around the world with mixed results in terms of public debt reduction and adverse political effects. This column examines the effect of fiscal austerity policies on corruption in Italian municipalities. The budget rules have led to a decrease in both recorded corruption rates and corruption charges per euro spent, without a clear effect on local public service provision. The drop in corruption emerges mostly in pre-electoral years for mayors eligible for reelection. Budget constraints might induce local governments to curb expenditures while dampening exposure to corruption.
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***3 Ways the Tech Oligarchs’ New Subsidy Is Ripping You Off – Ryan McMaken
12 mei

Billionaire plutocrats at Apple, Google, Microsoft, Cisco, and other tech companies don’t spend all their time deciding whether or not to boycott your state or lecture you on the “correct” voting laws. No, sometimes they have time to plot ways to rip off the taxpayers to the tune of more than 50 billion dollars.
At least, that’s what a new coalition of tech companies wants in a new effort to lobby Congress for subsidies and other “incentives” for the production of semiconductors. According to Fox Business:
The Semiconductor in America Coalition, made up of chip buyers including Amazon Web Services, Apple, Google and Microsoft, and manufacturers like American Micro Devices, Intel, Nvidia and Texas Instruments, has asked Congress to provide funding for the CHIPS for America Act, which authorized domestic chip manufacturing incentives and research initiatives.
These companies want “robust funding”—provided by taxpayers, of course—for the Act’s programs which, the Coalition says, “would help America build … additional capacity” for semiconductor production.
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How the BoE & UK Government Stoke the Housing Fire – Nick Corbishley
10 mei

Mortgage applications spike to record, while 130,000 homeowners are on mortgage holidays, 500,000 on tailored payment plans, and over 1 million are in unmortgageable apartments due to the flammable cladding crisis.
Net mortgage borrowing in the UK hit £11.8 billion in March, the strongest since the series began in 1993, according to Bank of England data. The previous peak was in October 2006 (£10.4 billion), when the UK was in the grip of the pre-financial crisis bubble. The difference between then and now is that back then the economy was about to fall off a cliff, whereas now it has already fallen off a cliff, having last year suffered its biggest drop in economic output in 300 years.
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***High-speed rail may hurt intermediate places: The role of long-haul economies – Hans Koster, Takatoshi Tabuchi, Jacques-François Thisse
9 mei

Modern transportation infrastructure can help foster cheaper travel and a better-connected economy. This column shows that improvements in transportation can affect the location choices of firms in ways that are often beneficial to large regions, but may be detrimental to small intermediate regions through job losses. Using data from Japan’s high speed rail network, the authors confirm that ‘in-between’ municipalities that are connected to the network witness a sizeable decrease in employment.
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Why Fungibility Is Important in Understanding Money and Crypto – 1Michael Milano
12 mei

As the decentralized revolution gains momentum and cryptocurrency adoption reaches new heights, concerns pertaining to the quality of money are too often ignored. According to a Crypto.com report, the number of bitcoin owners surpassed 71 million in January 2021, but how many of them are aware that bitcoin is not anonymous but rather pseudonymous, or recognize the pitfalls of embracing a currency lacking fungibility? While bitcoin’s provable scarcity signifies a return to the tenets of sound money, its creator’s peer-to-peer vision ultimately falls short without fungibility, because counterparty risk is created. Bitcoin’s fungibility issues come from the history that is attached to the coins. The insertion of trust into transactions by scrutinizing coin history has the potential to splinter the bitcoin network, in the process increasing fees as a result of regulatory compliance costs. More alarmingly, a transparent blockchain inevitably transforms into a surveillance chain on which reputation travels. In order to prevent censorship and protect our natural rights to privacy, a fungible currency is not a luxury, but a requirement.
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Inflation… Or Deflation – Charles Hugh Smith
8 mei

I see the same question in forums, threads, articles and emails: what can I do to protect myself and my family from whatever lies ahead?
Given the uncertainties and extremes that are so evident, recognizing risk is a useful first step, a recognition that is very much out of fashion.
If we glance at the charts of margin debt (loans taken against one’s stock portfolio) which is at record highs, and short interest (bets that stocks will drop) which is at record lows, it seems the primary risk on investors’ minds is FOMO (fear of missing out) of all the fat, juicy guaranteed gains just ahead.
For the few still asking about the source of risk, the general answer takes one of two paths: inflation leading to hyper-inflation or a deflationary collapse of defaults and popping asset bubbles.
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Central bank communication: Remember who’s talking – In Do Hwang, Thomas Lustenberger, Enzo Rossi
12 mei

Central bank communication has become an important policy tool over the past 20 years. This column uses survey data to show that business executives tend to associate a greater volume of speeches from the central bank with the central bank having less of an impact on the economy. Importantly, this effect stems not from speeches given by governors, but by other board members.
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Fed Goal: Destroy 26% Of Dollar’s Buying Power In 15 Years – Brian McGlinchey
14 mei

As Americans warily eye new data showing both consumer and producer price inflation heating up beyond expectations, few of them realize the Federal Reserve has an explicit goal to relentlessly degrade the purchasing power of their savings.
The Fed weakens the dollar—and pushes prices higher—by creating new money and pushing it out into the economy. If the Fed hits its stated target, the U.S. dollar will lose 10% of its buying power over the next 5 years, 26% over the next 15, and 40% over the next 25. As bad as that sounds, history suggests the dollar will fare even worse than the Fed intends it to.
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Consumers Expect Surging Inflation to Crush the Purchasing Power of their Labor: Fed’s Survey – Wolf Richter
10 mei

And there are some whoppers.
Consumers are picking up on the rise of inflation, and the Fed, which has been trying to heat up inflation, is pleased. The Fed watches “inflation expectations” carefully. The minutes from the March FOMC meeting mention “inflation expectations” 12 times.
The New York Fed’s Survey of Consumer Expectations for April, released today, showed that median inflation expectations for one year from now rose to 3.4%, matching the prior highs in 2013 (the surveys began in June 2013).
But wait… the median earnings growth expectations 12 months from now was only 2.1%, and remains near the low end of the spectrum, a sign that consumers are grappling with consumer price inflation outrunning earnings growth. The whoppers were in the major specific categories.
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Central banks in a shifting world: Selected takeaways from the ECB’s online Sintra Forum – Philipp Hartmann, Glenn Schepens
12 mei

The 2020 ECB Forum on Central Banking addressed some key issues from the ongoing monetary policy strategy review and embedded them in discussions of major structural changes in advanced economies and the post-COVID recovery. In this column, two of the organisers highlight some of the main points from the papers and debates, including whether globalisation is reversing, implications of climate change, options for formulating the ECB’s inflation aim, challenges with informal monetary policy communication, relationships between financial stability and monetary policy, how to make a monetary policy framework robust to deflation or inflation traps and the role of fiscal policy for the recovery from the pandemic.
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We Cannot Build an Economy on Lies – William L. Anderson
10 mei

In a recent issue, Time Magazine boldly declared, “The Free Market Is Dead,” and then added: “What Will Replace It?” Of course, one always can expect Time to be disingenuous at best and dishonest at worst, and as an academic economist, I have come to realize that after reading Time off and on for more than five decades, this is a publication that rarely gets it right when it comes to economic analysis.
Yet, we also are dealing with a publication that effectively reflects whatever the current spirit might be. In the mid-1980s, Time gave its readers the infamous cover condemning the bacon-and-eggs breakfast and gave massive publicity to the eat-more-carbs “experts.” America’s climb into obesity followed shortly afterward, and even Time had to backtrack on its original claims in 2014, admitting that the so-called food science truths it promoted turned out to be falsehoods.
One doubts, however, that Time ever will admit in any future edition that it has promoted outright economic lies while it promotes the policies of the Joe Biden administration. Instead, one figures that the publication will do what it always does when the government interventions it champions blow up: blame free market capitalism.
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The government as an (effective) venture capitalist – Jessica Bai, Shai Bernstein, Abhishek Dev, Josh Lerner
14 mei

Government funding to boost innovation has seen an uplift since the unfolding of the COVID crisis. Using extensive global data, this column examines how government funding programmes focused on early-stage companies interact with private capital markets, and finds a positive relationship between government funding at this business stage and private capital allocation. Increased reliance on private capital markets enabled governments to mitigate investment frictions, improve capital allocation, and thereby increase local innovation.
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Here’s How ‘Everything Bubbles’ Pop – Charles Hugh Smith
10 mei

At long last, the moment you’ve been hoping for has arrived: you’re pitching your screenplay to a producer. Your agent is cautious but you’re confident nobody else has concocted a story as outlandish as yours. Your agent gives you the nod and you’re off and running:
Writer: Two guys start a cryptocurrency as a joke to parody the crypto craze, and they name it KittyCoin. It goes nowhere but then the greatest speculative bubble of all time takes off, it’s the dot-com and housing bubble times 100 but in everything, and within a couple months the entire economy is dependent on this bubble, and the bubble is dependent on KittyCoin, which has shot up 15,000 percent in a few weeks. A celebrity CEO who’s been promoting KittyCoin is invited to host a failing TV variety show, and now the whole economy depends on KittyCoin soaring even higher.
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Karl Marx’s Road To Hell Is Paved With Fake Money – MN Gordon
14 mei

“The way to Hell is paved with good intentions,” remarked Karl Marx in Das Kapital.
The devious fellow was bemoaning evil capitalists for having the gall to use their own money for the express purpose of making more money.
Marx, a rambling busybody, was habitually wrong. The road to hell is paved with something much more than good intentions. Grift, graft, larceny, corruption and fake money are what primarily composes the pavement. Good intentions are merely dusted in to better the aesthetic.
If you want to understand what’s going on with exploding price inflation then you must understand this…
Right now in the United States we have a scam currency that’s controlled by central planners. Specifically, we have what Marx envisioned in Plank No. 5 of his Communist Manifesto:
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These European Countries Beat Poverty and Increased Wealth with Low Taxes and Low Regulation – Eben Macdonald
14 mei

Democratic socialists frequently laud the Nordic countries as examples of the success of progressive taxation, generous welfare states, and powerful labor unions. Free marketers have responded by pointing out that not only did these countries get rich long before these policies were implemented, but they also have as much regulatory flexibility as the United States, according to World Bank data. However, we should also point to countries that embraced so-called neoliberalism as a means to getting richer and reducing poverty. It turns out that this strategy has been proven to work and these areas of Europe have living standards that are just as high, if not higher, than that of the Nordics. Here, we’ll look at three examples.
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Free trade agreements do not always ensure free trade – Jan I. Haaland, Ian Wooton
14 mei

The changes in the UK’s trading relationship with the EU are likely to have widespread effects, many of which are yet to be understood in full. This column introduces the issue of compliance with rules of origin requirements within free trade agreements. The authors argue that complying with these rules can present firms with additional production costs that would not have been present had the UK remained a part of the EU.
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***The Socialists Who Supported Free Trade – ipton Matthews
14 mei

Many socialists think that protectionism benefits the poor. But these views deviate from the free trade tradition that can be found in some corners of socialist thought. Like liberal economists in the nineteenth century, some socialists also argued that protectionism served the interests of corrupt entrepreneurs. The forgotten contribution of socialists to the free trade tradition is clearly fleshed out in an article titled “Marx and Manchester: The Evolution of the Socialist International Free-Trade Tradition, c.1846-1946,” featured in The International History Review.
For scholars interested in unlocking the complex relationship between socialism and free trade this article is a must-read. Marc-William Palen ably disputes the notion that socialists are universally in favor of protectionism. However, he admits Marx and Engels proposed free trade because of the perception that it accentuated the socialist revolution: “Marx and Engels viewed the international turn to free trade as an advancement of the global capitalist project, the dawn of a new epoch of capitalist internationalism. For Marx, free trade was a progressive condition of industrial capitalism, moving it a step closer to socialist revolution. Protectionism, by contrast, was regressive and belonged to the pre- and proto-industrial capitalist era. For Marx’s close friend and patron Friedrich Engels, too, free trade was preferable to protectionism as the former would ‘expand as freely and as quickly as possible’ the capitalist system and thus hasten the destruction of ‘the whole system.”
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IRS Launches Crackdown To Ensure Crypto Investors Pay Their Taxes – Tyler Durden
15 mei

Yesterday’s news that the DoJ and IRS are digging into Binance amid whispers about allegations of tax fraud, manipulation and AML violations was just the latest indication from the government that it is taking enforcement of securities taxes tied to crypto wealth very seriously. In case that wasn’t already clear, WSJ published a story in its “Tax Report” section (with the federal tax deadline just days away at May 17) reminding readers that the IRS under President Joe Biden is coming for your crypto wealth – and those that don’t cough it up might be subject to harsh penalties, both financial and criminal.
It starts by reminding readers that two new IRS investigations to catch crypto tax cheats targeting various exchanges have been launched in recent months. In April, a judge in Boston approved an IRS summons to the payments company Circle and its affiliates, including the crypto exchange Poloniex. In May, a judge in San Francisco approved a similar summons for records from Kraken, another exchange based in California. Both summonses apply to customers who have traded more than $20K in crypto in any single year between 2016 and 2020.
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The Swiss National Bank’s US Stocks: $150 Billion and Counting – Robert Aro
14 mei

This time last year, the Swiss National Bank (SNB) had US stock holdings of $94 billion. The portfolio of Switzerland’s central bank has grown by $56 billion since, reporting ownership of $150 billion worth of US listed stocks as at Q1 2021. Apple is currently the largest holding, at $8 billion, but the portfolio contains countless smaller publicly traded companies, like GameStop, valued at $25 million at quarter end this year.
At the recent annual general meeting, SNB Chairman Thomas Jordan said:
We would like to live in a world where the interest rates are positive. But in the current situation negative interest rates as well as readiness to intervene in the currency markets are essential.
Per the Chairman, it’s not the bank, the world just isn’t quite right. Apparently, due to the “current situation,” the bank is forced to act accordingly. As reported, despite a recent devaluation of the Swiss franc, the currency is still “highly valued.” For this reason, its appreciation must be moderated via monetary intervention.
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***Cooperation among people with different cognitive skill levels – Eugenio Proto, Aldo Rustichini, Andis Sofianos
13 mei

A large part of social interaction occurs among very different individuals. Characteristics such as trust, altruism, and intelligence can have important effects on strategic behaviour. This column studies how interactions between groups with different cognitive skill levels affect cooperation. Using an indefinitely repeated Prisoner’s Dilemma game, it finds that integrating players with different abilities leads to higher cooperation rates and higher aggregate payoffs than when they play separately. This is related to the strategy implementation of high-skill players, who are shown to be less lenient in integrated groups.
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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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