Economische aanraders 17-04-2022
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.
How the Fed’s Tampering with the Policy Rate Affects the Yield Curve – Frank Shostak
At the end of March this year the difference between the yield on the ten-year Treasury bond and the yield on the two-year Treasury bond fell to 0.010 percent from 1.582 percent at the end of March 2021.
Many analysts believe that a change in the shape of the yield spread provides an indication regarding where the economy is heading in the months ahead, with an increase in the yield spread raising the likelihood of a possible strengthening in economic activity in the months to come. Conversely, a decline in the yield spread is seen as indicative of a possible economic downturn ahead.
A popular explanation regarding the shape of the yield curve is provided by expectations theory (ET). According to ET, the expectations for an increase in the short-term interest rate sets in motion an upward-sloping yield curve, while the expectations for the decline in the short-term interest rate sets the downward-sloping yield curve.
Monetary policy and financial stability implications of central bank digital currencies – Jean-Francois Jamet, Arnaud Mehl, Cyril Max Neumann, Fabio Panetta
Central banks around the world are exploring the possibility of issuing retail central bank digital currencies. This column takes stock of advances in research on their possible implications for financial stability and monetary policy depending on their design. It also identifies avenues for further research that could usefully inform future policy decisions on such currencies.
Is There a Case for the Pre-1914 Gold Standard? Yes, if You Believe Inflation is a Bad Thing – Vibhu Vikramaditya
The Russian central bank recently announced that it will stop buying gold at a fixed rate and will instead buy them at the negotiated rate from banks. Following the numerous sanctions which were imposed on Russia. The Ruble had fallen tremendously against the US dollar, to get out of such a situation it had announced that it would buy gold at a fixed price of 5,000 rubles a gram until June 30. Since that announcement, the ruble has strengthened sharply against the dollar for over one month. Five thousand rubles was worth around $52 on March 25 and around $63 on Thursday.
The mechanism which led to the increase was to allow the markets to play themselves out, in order to combat sanctions, they asked the nations to transact in their currency which, due to the extensive and growing array of sanctions by the western front, was becoming devalued by each day. It was here, by demanding payment in rubles, are attempting to increase demand for their currency which led to its increase where being pegged to hard currency allowed the confidence of the markets to increase so ruble wasn’t dumped extensively
Overheating conditions indicate high probability of a US recession – Alex Domash, Lawrence H. Summers
As inflation accelerates in the US, the Federal Reserve will raise interest rates in the hope of achieving a soft landing for the economy. This column uses historical data on unemployment and inflation to evaluate the likelihood that the Fed can lower inflation without causing a recession. The authors find that low levels of unemployment and high inflation are both strong predictors of future recessions, and that overheating indicators today suggest a very high probability of recession over the next two years. The likelihood of the Fed achieving a soft landing in the economy appears low.
Which Leads to Doom, Which Leads to Revival: Free Money or Frugality? – Charles Hugh Smith
Clinging to delusional fantasies of “free wealth” won’t lead to positive outcomes, any more than swallowing handfuls of meds leads to “free health.”
Under various guises, labels and rationalizations, “free money” has now been established as the default policy fix for any problem. Stock market falters? The solution: free money! Economy falters? The solution: free money! Bankers face collapse from ruinously risky bets? The solution: free money! Infrastructure crumbling? The solution: free money!
Inflation raging? The solution: free money! Ruh-roh. We have a problem free money won’t fix. Instead, free money accelerates the conflagration. Dang, this is inconvenient; the solution to every problem makes this problem worse. Now what do we do?
Despite the apparent surprise of the policy-makers, pundits and apologists, this was common sense. Create trillions of dollars out of thin air and spread the money around indiscriminately (fraudsters and scammers getting more than the honest, of course) after global supply chains were disrupted and shelves were bare, then open the floodgates of speculative gambling in stocks, cryptos, housing, used cars, bat guano, quatloos, etc., and what do you think will happen?
We Still Haven’t Reached the Inflation Finale – Brendan Brown
Inflations have an inbuilt mechanism which works to burn them out.
Government (including the central bank) can thwart the mechanism if they resort to further monetary injections of sufficient power.
Hence inflations can run for a long time and in virulent form. This occurs where the money issuers see net benefit from making new monetary injections even though likely to be less than for the initial one which took so many people by surprise.
Ultimately at some point the cost-benefit calculus shifts in favor of government not blocking the operation of the burn-out mechanism.
Let’s try to work out which model of burnout the Great Pandemic inflation in the US will follow.
The role of capital controls and macroprudential measures in taming capital flows – Jean-Charles Bricongne, Rémy Lecat
Despite the large capital outflows during the Covid-19 crisis, emerging economies did not make extensive use of capital controls. Indeed, these have had limited effects on capital outflows, being more effective on inflows. This column shows that macroprudential measures on the financial sector, which are increasingly part of the policy mix, have a positive impact on outflows when applied in the origin country and a negative impact on inflows when applied in the destination country. Cooperation between origin and destination countries, both on capital controls and macroprudential measures, has more than additive effects.
Deflation: Bad for the Government, Good for Producers and Consumers. What’s Not to Like? – Andre Marques
Governments lie about the inflation rate and benefits from it, so, it is no surprise when they talk against deflation (for the purpose of this article, assume inflation as a general increase in prices and deflation as the opposite), which would be good for consumers and the economy, but bad for the government. (While Austrian Economists define inflation as an increase in the supply of money, the net effect of inflation is an increase in asset prices, as well as a distortion of the structure of production.)
Prices fall in a scenario where the currency is not inflated and, therefore, there are more sustainable investments and increased productivity. In an economy with little or no government intervention (at least few monetary interventions and few regulations, government spending and taxes), there are more long-term investments (capital investments, for example), which increase the economy’s productivity. In a deflationary economy, the purchasing power of money tends to increase, as there is no monetary inflation by central banks and prices tend to fall. Consumers can purchase more products and services and companies have higher profit margins.
The price of war: Macroeconomic effects of the 2022 sanctions on Russia – Anna Pestova, Mikhail Mamonov, Steven Ongena
Following Russia’s invasion of Ukraine on 24 February 2022, the US, Europe, and many other countries imposed new economic sanctions on Russia. This column assesses the economic effects of these sanctions using a structural vector auto-regression model of the Russian economy. The findings suggest that industrial production, consumption, and investment will all decline, and that Russian GDP will contract by -12.5% to -16.5% in 2022. Nevertheless, the Russian economy will continue to rely on its existing export model, which may be difficult to undermine, even with potential oil and gas embargoes.
Inflation Nightmare Keeps Getting Worse: Producer Prices Break Out. Inflationary Mindset Rules – Wolf Richter
Services PPI and Core PPI spike.
The Producer Price Index for Final Demand spiked by 1.4% in March from February, and by 11.2% from a year ago, both the biggest and worst spikes in the year-over-year data going back to 2010, the Bureau of Labor Statistics said today. After having been stuck at around 10% for four months in a row, producer price inflation has now broken out – to use a stock trading term.
The PPI Final Demand tracks the input prices for consumer-facing industries whose selling prices are picked up in future months by the Consumer Price Index which yesterday, WHOOSH, already hit 8.5%. The PPI Final Demand shows what’s in store for the CPI in future months. And there is no “softening” in store, and it’s the PPI for services that has now started to spike.
For the past 15 months, producer prices have soared relentlessly. Five months in a row of double-digit producer price inflation is quite something. And the breakout today is remarkable.
Yes, It Is Different This Time – Charles Hugh Smith
Most people would be horrified by a 40% decline in their “investments.” When bubbles pop, speculative assets don’t drop 40%, they drop 90% or even 98%.
The irony of the sudden panic about real-world inflation generated by rising wages is two-fold:
1. The status quo never mentions the rampant inflation in assets, because the already-wealthy got wealthier, so asset inflation is wonderful and deserves to be permanent
Look at the chart below (courtesy of Mac10) of the S&P 500 / wages adjusted for the CPI (consumer price index): corporate profits have soared against wages since 2009.
2. Wages have been hammered since 1975, as RAND Corporation research found $50 trillion has been transferred from the workforce to capital in the past 45 years. (see chart below)
The wealthy had no complaint about wages losing purchasing power for 45 years, but the first little blip up in wages’ purchasing power causes a panic.
The simple economics of a tariff on Russian energy imports – John Sturm
As Russia’s invasion of Ukraine continues, EU policymakers are weighing more severe sanctions. This column argues that unlike a full energy embargo, introducing small EU tariffs on energy imports from Russia could weaken the Russian economy while simultaneously making the EU better off. While larger tariffs would come at a cost to the EU, they are likely to be more efficient than other sanctions already in place.
How Fully Private, No-Insurance Hospitals Help the Common Man – Daniel Diefenbach
How does one make an economic decision when the price of a good is not evident? To any adherent of the Austrian school, this of course is impossible. There is no way to decide whether to purchase something if the only way of knowing the price is after committing. For example, who would fill up their car only to see what the price was at the end? No one. In no aspect of life would this make sense, yet it is the standard in the American healthcare system.
This is the predicament I was in. I needed a minor outpatient surgery and tried to weigh my options, but this was impossible without knowing the price of the surgery. If I had some idea, I could at least gauge how much I would need to save. No prices were provided at any nearby facility to someone without insurance.
Retail Sales v. Raging Inflation, Stimulus Miracle March, and the Red-Hot Shift to Services – Wolf Richter
It’s rough out there in multiple ways.
Retail sales, released by the Commerce Department today, are sales only of goods, not services. But services account for nearly two-thirds of what consumers spend their money on and include rents, plane tickets, hotel bookings, streaming services, insurance, concert tickets, and the like. There has been a surge in consumer spending on services in recent months, as consumers revert to the pre-pandemic spending patterns and shift spending back to services, which had collapsed. Spending on services had spiked by 12.4% from a year earlier in February, easily outpacing inflation. So this shift to services from goods – meaning from retail – has been happening.
Retail sales in March rose by 0.5% from February, seasonally adjusted, and by 16.8% not seasonally adjusted, to $677 billion, up by 7.0% from Stimulus Miracle March last year, when the stimulus checks got spent, sending retail sales into a dizzying spike.
Do Institutions Play a Role in Promoting Economic Growth? In Short, Yes – Lipton Matthews
Economists teach that institutions determine long-term economic growth—but are some institutions more crucial than others? The legendary Douglas North (1989) popularized the idea that the Glorious Revolution in England culminated in the imposition of institutional constraints on the monarchy. North argued that such an arrangement enabled growth by restricting the authority of political actors to extract resources.
Since the publication of North’s seminal text, many have applied his arguments to historical and contemporary growth. However, institutionalist explanations for economic growth are only partially accurate. To his credit, in later works, Douglas North updated his theory to account for the distinctions between open access orders in the political and economic spheres.
The impact of uncertainty on investment by Russian firms: A parable from 2014 – Sumru Altuğ, Sevcan Yesiltas
The 2014 Ukraine crisis resulted in sanctions being imposed on the Russian economy. This column analyses the economic uncertainty these sanctions generated and the impact on investment by Russian non-financial firms. It shows that investment in the non-financial sector declined after the sanctions were imposed. Sectoral variation in foreign exchange debt exposure, oil cost dependence, and exposure of inputs to indirect sanctions are all important mechanisms through which the heightened uncertainty operated. This has important implications for the Russian economy, which is facing severe sanctions as a result of the current war with Ukraine.
***“My Dream Is of a Europe Which Consists of 1,000 Liechtensteins.” –
[Editor’s note: Earlier this month Dr. Hans-Hermann Hoppe appeared on SERVUS TV for a discussion “On State, War, Europe, Decentralization and Neutrality.” An English translation of the transcript was prepared by Leonhard Paul, a law student from Germany.]
Interviewer: I would like to welcome our second guest in the studio. It is the philosopher and economist with an international range Hans-Hermann Hoppe. Nice to meet you, Mr. Hoppe.
The dream of a united Europe, the eternal longing of the empire. Do you also dream this dream?
Hans-Hermann Hoppe: No. I don’t dream of this dream at all. My dream is the dream of a Europe, which consists of 1,000 Liechtensteins. I will also try to explain this. First of all, you have to realize that there is a difference between states and private companies. States are organizations that do not earn their money by producing something that people want to buy voluntarily or by offering services that people want voluntarily. States live from compulsory levies, taxes and from printing their own money. For this reason, states are institutions of exploitation. Economists have called them stationary bandits for this reason.
Gasoline Price Shock Triggered Demand Destruction Yet? And Where Will Gasoline Prices Go from Here? – Wolf Richter
There’s some demand destruction. But oil bounced again, gasoline might be next. My guess is a long-drawn-out zigzag higher.
Following the dizzying spike in gasoline prices, the question arises when demand destruction will set in, where people start driving less, start taking it easier to conserve gas when they do drive, or start prioritizing the most economical vehicle in their garage. If enough people do it, demand begins to decline, and gas stations have to compete for dwindling business. Demand destruction is what would cause the price to come down again. Are we there yet?
The Energy Department’s EIA measures consumption of gasoline in terms of barrels supplied to the market by refiners, blenders, etc., and not by retail sales at gas stations. The volume of gasoline supplied has fallen for the third week in a row. This is unusual this time of the year, when gasoline consumption normally rises through the summer.
***The economic impact of the Russian state in the Southern Urals, from the 18th century to the present – Gerda Asmus, Raphael Franck
National policies often fail to encourage development among local populations that need it most. This column provides historical perspective on the problem by considering Russian state power in the Southern Urals after an 18th century peasant rebellion. By exploiting regional discontinuities created by the boundary of rebel-held territory, the authors assess the causal impact of state intervention at the local level. They find that in the absence of relevant public policies, historical state capacity in the Southern Urals neither prevented a decline in industrial employment nor enabled the rise of a service sector.
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