Economische aanraders 23-10-2016
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.
*** China Moves Forward with Its De-Dollarization Strategy – Stefan Gleason
The world monetary order is changing. Slowly but steadily, global trade and currency markets are becoming less dollar-centric. Formerly marginal currencies such as the Chinese yuan now stand to become serious competitors to U.S. dollar dominance.
Could gold also begin to emerge as a leading currency in world trade? Over time, it certainly could. But the more immediate implications for gold’s monetary role center on its increasing accumulation by central banks such as China’s.
As of October 1st, the Chinese yuan has entered the International Monetary Fund’s Special Drawing Right (SDR) basket of top-tier currencies. It now shares SDR status with the U.S. dollar, euro, British pound, and Japanese yen.
Before the yuan officially becomes an SDR currency, the World Bank intends to sell $2.8 billion in SDR bonds in Chinese markets. The rollout of SDR bonds in China began August 31st. According to Reuters, China’s promotion of SDR bonds “is part of a wider push in China to… boost demand for Chinese yuan and diminish reliance on the U.S. dollar in global reserves.”
Six Things to Consider About Inflation – Emile Woolf
As an economic term, “inflation” is shorthand for “inflation of the money supply.”
The general public, however, usually takes it to mean “rising prices” which is not surprising since one of the common effects of an increase in the money supply is higher prices. However, supporters of government policy often say, “If quantitative easing (QE) and its terrible twin, fractional reserve banking, are so awful, why have we got no inflation?”
The bond-equity allocation of the Norwegian sovereign wealth fund – Espen Henriksen, Knut Anton Mork
The ‘Oil Fund’, Norway’s sovereign wealth fund, is the world’s largest at more than $850 billion. The economic gains from the establishment of the fund have come from applying core insights to improve the risk-return trade-off for the nation’s total wealth. This column presents the recommendations of a government-appointed committee for the strategy of the fund going forward that build on the same core principles.
Is Yellen Starting a Civil War at the Fed? – Ryan McMaken
Janet Yellen continues to be an inflation dove, and last week, she suggested that the FOMC keep interest rates low, even if unemployment continues to fall and official inflation rates increase.
After more than seven years of rates below 1 percent, many members of the FOMC has started to worry about just how they’re going to re-establish any credibility. It’s already become abundantly clear that the Fed is too frightened to do much of anything other than sit around and hope that the economy will somehow move out of its multi-year cycle of low expectations and mediocre growth.
*** US Freight Volume Drops to Lowest Level since 2009, “Industrial Recession” Hits Full Stride, Overcapacity Crushes Rates – Wolf Richter
“We’ve been patiently waiting for the consumer.”
This just keeps getting worse. The Cass Freight Index, tracking US shipment volumes by all modes of transportation, fell 3.1% in September from a year ago, the 19th month in a row of year-over-year declines, and the worst September since 2009!
QE/ZIRP Is Crushing the Global Supply Chain – Charles Hugh Smith
We will soon wish we were allowed an honest business cycle recession once the current overcapacity implodes the global economy.
We all know the quality of many globally sourced products has nosedived in the past few years. I addressed this in Inflation Hidden in Plain Sight (August 2, 2016): not only is inflation (i.e. getting less quantity for your money compared to a few years ago) visible in shrinking packages, it’s present but largely invisible in declining quality.
When products fail in a matter of months, we’re definitely getting less for our money, as what we’re buying is a product cycle, not just the product itself. We buy a product expecting it to last a certain number of years, and when it fails in a matter of weeks or months, this failure amounts to theft and/or fraud.
When a costly repair is required in a rlatively new product, we’re getting less for our money, and when the repair itself fails (often as a result of a sub-$10 or even sub-$1 part), we end up paying twice for the inferior product.
International trade and household debt: How import competition from China helped fuel the credit bubble of the 2000s – Jean-Noël Barrot, Erik Loualiche, Matthew Plosser, Julien Sauvagnat
In the years preceding the Great Recession there was a dramatic rise in household debt in the US, and an increase in import competition triggered by the expansion of China and other low-wage countries. This column uses consumer credit data to argue that these phenomena are intimately linked. Household debt levels increased significantly in counties where US manufacturing jobs shifted overseas, and regional exposure to import competition explains 30% of the cross-regional variation in the growth in household debt.
Fiat money and gold – Alasdair Mcleod
It is time to revisit the Fiat Money Quantity (FMQ), which totals US dollar money deposited in the banking system, the commercial banks’ money on deposit at the Fed and physical cash.
Besides alerting us to how the expansion of fiat money is progressing, an objective of this exercise is to give some guidance on the price relationship with gold. It is particularly appropriate at a time when banking analysts have turned generally bearish, believing that the rally in gold is now over.
The idea behind FMQ is to define the quantity of fiat money, which can then be compared with the value of monetary gold, which is some or all of the above-ground stocks of physical gold. A fuller description of FMQ can be seen here. The long-term chart update is shown below.
Keeping policy rates persistently low: Implications for the monetary transmission mechanism – Carlos Garriga, Finn Kydland, Roman Šustek
Central banks responded to the financial crisis by cutting policy rates to prevent deflation and curb the decline in economic activity, but these responses have been anything but temporary. This column explores whether the sticky price channel is still relevant in an environment of persistently low rates. Although the effectiveness of the sticky price channel is limited, monetary policy instead transmits through mortgage debt. The recent period of low rates and low inflation has redistributed income and consumption from savers to mortgage borrowers.
Who’s Powering the War on Cash? – Don Quijones
On Monday in Japan, Apple CEO Tim Cook vented his spleen once more against physical currency, telling the Nikkei that “we don’t think the consumer particularly likes cash.”
It’s a bizarre conclusion to reach, especially in Japan where cash is still the undisputed king. At ¥90 trillion ($885 billion), or about a fifth of gross domestic product, the value of banknotes in circulation is the highest in the world as a proportion of the economy. Many small businesses, including many restaurants, don’t even take plastic. Yet, the country was also the first to popularize mobile wallets and smartphones.
“We would like to be a catalyst for taking cash out of the system,” Cook said, his mind fixed on Apple Pay, which takes a cut on every transaction it processes.
Yet Apple Pay isn’t generating substantial revenue for the company, as Fortune points out. The service — as with just about everything Apple ever produced — is only compatible with Apple’s own products, leaving the more than a billion people worldwide who use Android-based smartphones out of the loop. Not to mention the billions more who don’t use a smart phone at all.
“The Outcome Is Undeniable” – Global Debt Investors Face Reality Of A World Devoid Of Options – Danielle DiMartino Booth
More haunting even than the terrified screams of lambs being led was the silence that followed their slaughter.
Such was the searing pain of relentless recollection for FBI agent Clarice Starling, the tortured lead played to Oscar perfection by Jodie Foster. In an agonizingly whispered scene that has forever left its imprint on the minds of horrified audiences, we hear the bleating of Starling’s long-dead tormentors.
Clarice’s hushed revelations to Hannibal reveal a desperate act by her young orphaned self. Unable to bear the horror, she’s running away from the bloodbath of spring lambs being slaughtered and her cousin’s sheep ranch. Desperate to do something, anything, she struggles to drive them from their pens to freedom: “I tried to free them…I opened the gate of their pen – but they wouldn’t run. They just stood there confused. They wouldn’t run…”
How Regulation Protects Established Firms – Peter G. Klein
In various talks (long and short) and articles about big business, I’ve stressed the point that established companies frequently lobby for more regulation, give generously to politicians on all sides, and benefit from an environment in which government plays a large role in the economy. Regulation makes many firms larger and more bureaucratic than they would otherwise be. Murray Rothbard, building on earlier scholars such as Gabriel Kolko, made this a major theme of his work on the history of regulation.
Rattled German CEOs Seek “Revival of Germany Inc.” as “Protective Wall” against US and China – Wolf Richter
About 20 German industry chieftains, rattled by the hits German companies have recently taken, including Deutsche Bank and Volkswagen, spent Saturday and Sunday two weeks ago on the phone with each other. They were fretting about the future of Germany’s export-dependent industry and outlining solutions. Some of the participants have since talked to the German daily, Die Welt, which published its report on Sunday.
Participants included Siemens CEO Joe Kaeser, BASF CEO Kurt Bock, Deutsche Bank CEO John Cryan, BDI (Association of German Industry) president Ulrich Grillo, and BDI General Manager Markus Kerber.
How to protect key industries in Germany is also topic of a paper being worked on by the Economy Minister Sigmar Gabriel and his folks, the Welt reported. They’re searching for “protective walls,” and are working on a “list of options for actions to protect key German industries.” Finance Minister Wolfgang Schäuble and State Secretary at the Finance Ministry Thomas Steffen are in on it.
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.