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Economische aanraders 24-10-2021

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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Understanding Money Velocity and Prices – Frank Shostak
22 oktober

The yearly growth rate of US’s “Austrian money supply” jumped by almost 80 percent in February 2021 (see chart). Given such massive increase in money supply, it is tempting to suggest that this lays the foundation for an explosive increase in the annual growth of prices of goods and services sometime in the future.
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Some experts are of the view that what matters for increases in the momentum of prices is not just increases in money supply but also the velocity of money—or how fast money circulates. The velocity of AMS fell to 2.4 in June this year from 6.8 in January 2008. In this way of thinking, a decline in money velocity is going to offset the strong increase in money supply. Hence, the effect on the momentum of goods prices is not going to be that dramatic. What is the rationale behind all this?
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You Think Inflation Fears Are Overhyped? Think Again – Tyler Durden
22 oktober

By Bloomberg markets live commentator and former Lehman trader Mark Cudmore
U.K. breakeven rates at the highest levels this century aren’t yet high enough…
We’re entering the eye of the earnings season and the message from corporates is already coming through loud and clear: prices will climb a chunk further over the coming months, even as output is impaired. Every day brings fresh news of supply-chain disruption and rising costs.
U.K. 5-yr inflation expectations (as measured by breakevens) have climbed an incredible 160bps so far this year, to reach the highest levels on records going back more than 25 years. If you thought you experienced an inflationary environment pre-GFC, you ain’t seen nothing yet. The U.K. hasn’t seen something like this since the early 90s when the BOE rate was at 15%.
This doesn’t mean that we’re locked into an inflationary death spiral — but it does mean that there most people active in markets today have little professional experience of trading in this environment. The corollary is that no one should have high conviction in the inflation-is-transitory mantra; if they do, be suspicious.
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Low rates and bank stability: The risk of a tipping point – Davide Porcellacchia
18 October

Policy rates in advanced economies are unusually low. This phenomenon has competing effects: low rates harm bank profits by squeezing interest margins, but also boost the value of long-term assets held by banks. Using a standard banking model, this column determines the policy rate level at which these two forces cancel out, or the ‘tipping point’. Past this tipping point, the net effect of low rates on bank capital is negative. Applying the model to the US economy, the tipping point in August 2007 is estimated as a policy rate of 0.55%.
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While the Fed Still Fuels the Fire, the Bank of Russia Throws Shock-and-Awe Rate Hikes at Raging “Persistent” Inflation, But US Inflation Not Far Below Russia’s – Wolf Richter
23 oktober

These mega rate hikes likely have Putin’s support because inflation can become a political bitch.
In another shock-and-awe move to douse raging inflation that is making no effort at being transitory, the Bank of Russia raised its policy rate by 75 basis points today, to 7.5%, its sixth rate hike, and the largest hike since the 100-basis-point hike on July 23. And it held the door open for more rate hikes.
“This is a significant increase and, obviously, this is not a fine-tuning exercise,” Bank of Russia Governor Elvira Nabiullina said in her post-meeting statement.
“This decision is driven not only by the current pace of inflation, but primarily by high inflation expectations and a considerable revision of the forecast,” she said.
A rate hike was expected but not of that magnitude. Only one of the 44 economists surveyed by Bloomberg had forecast a 75-basis-point hike; the other 43 saw a hike of 25 basis points or 50 basis points.
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A policy triangle for Big Techs in finance – Erik Feyen, Jon Frost, Leonardo Gambacorta, Harish Natarajan, Matthew Saal
23 October

Big Techs’ expansion into financial services can bring competition, efficiency, and inclusion, particularly in emerging market and developing economics. But it also gives rise to issues concerning a level playing field with banks, operational risk, too-big-to-fail issues, as well as challenges for antitrust rules and consumer protection. This column presents a policy triangle that highlights the trade-offs between three objectives: financial stability, competition, and data privacy. Handling these challenges requires more coordination on rules and standards, both between domestic authorities and across international borders.
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***Visualizing The World’s Biggest Real Estate Bubbles In 2021 – Tyler Durden
23 oktober

Identifying real estate bubbles is a tricky business. After all, as Visual Capitalist’s Nick Routley notes, even though many of us “know a bubble when we see it”, we don’t have tangible proof of a bubble until it actually bursts.
And by then, it’s too late.
The map above, based on data from the Real Estate Bubble Index by UBS, serves as an early warning system, evaluating 25 global cities and scoring them based on their bubble risk.
Reading the Signs
Bubbles are hard to distinguish in real-time as investors must judge whether a market’s pricing accurately reflects what will happen in the future. Even so, there are some signs to watch out for.
As one example, a decoupling of prices from local incomes and rents is a common red flag. As well, imbalances in the real economy, such as excessive construction activity and lending can signal a bubble in the making.
With this in mind, which global markets are exhibiting the most bubble risk?
The Geography of Real Estate Bubbles
Europe is home to a number of cities that have extreme bubble risk, with Frankfurt topping the list this year. Germany’s financial hub has seen real home prices rise by 10% per year on average since 2016—the highest rate of all cities evaluated.
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The Epitome Of Financial Repression In 2 Charts – Bryce Coward
22 Oktober

By now investors are quite aware of the consequences of financial repression via negative real interest rate policies.
Since interest rates on “risk free” government debt are too low to even compensate for inflation, it pushes investors out the risk spectrum in an effort to achieve a positive rate of return after inflation. So, it should come as no surprise that yield spreads between risky assets like corporate debt and US Treasury bonds would narrow in a financial repression.
Interestingly, though, we may have reached the point where the link between corporate fundamentals and corporate credit spreads is broken, and that the overriding factor in pricing credit risk is the level of real interest rates.
For example, as the first chart below shows, the debt service ratio (interest expense as a percent of sales) for the US non-financial sector reached an all-time high in 2020 and has only improved marginally since then, despite the dramatic fall in the level of interest rates since 2018. At the same time, the spread between investment grade corporate yields and the 10 year US Treasury yield has narrowed to nearly an all-time low. Typically, there is at least a directional relationship between the corporate debt service ratio and credit spreads.
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Central Banks and Socialism Are Forever Linked Together – Jörg Guido Hülsmann
22 oktober

It is well known that socialism is a shortage economy. It is the economy of inefficiency and corruption, of indifferent workers and of bigwigs, of lacking spare parts, of lacking funds, of failure, of permanent reform needs and of constantly unsuccessful reforms. This concerns in particular total socialism, as it was realized in the Soviet Union or under National Socialism. But it is no less evident in the numerous partial socialisms that are featured in the real existing welfare state, in its numerous state “systems.” Budget deficits year in, year out despite high contributions—that is the reality in the state pension system and in the state health system. The state education system is similar: declining student performance and growing illiteracy despite sky-rocketing expenditure. No private entrepreneur could afford to let the costs get out of hand in such a way. Anyone who is in competition has to keep improving. Only those who have a legal monopoly and can make use of taxpayers’ money if necessary do not need it.
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“How Dare You?” – These Countries Are The Most Committed To Coal – Tyler Durden
22 oktober

The already ambitious global carbon emission reduction goals were dealt a significant blow this month as China, having recently pledged to end all future foreign coal power projects, announced that they would be further committing to domestic coal expansion – likely pushing back the year the country expects to reach peak emissions (currently 2030), referencing a new “phased timetable and roadmap for peaking carbon emissions”
Statista’s Martin Armstrong reports that, in a statement after a meeting of Beijing’s National Energy Commission, the Chinese premier, Li Keqiang said:
“Given the predominant place of coal in the country’s energy and resource endowment, it is important to optimise the layout for the coal production capacity, build advanced coal-fired power plants as appropriate in line with development needs, and continue to phase out outdated coal plants in an orderly fashion. Domestic oil and gas exploration will be intensified.”
As data from Global Energy Monitor shows, planned and under construction coal plants in China already totaled 238 projects in July 2021, equating to an expected 260,017 megawatts of capacity.
This new output accounts for over half of all the world’s currently under construction coal energy capacity and puts China firmly ahead of all other countries still investing in the fossil fuel.
We know at least one person is going to be furious…
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Expectations data indicate the US is entering recession about now – Alex Bryson, David Blanchflower
21 October

Economic downturns are not as unpredictable as we once thought. There is mounting evidence that the expectations of consumers, workers and employers predict economic downturns, sometimes 12 to 18 months ahead. But we live in exceptional times. The COVID-19 pandemic and its aftermath have sown doubt and uncertainty among consumers and producers and may do so for some time to come. So what’s the economic prognosis? this column argues that expectations data for the US suggest the country is entering recession about now.
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Three Things the Fed Must Do to Normalize Bond Markets – rendan Brown
21 oktober

By late in the second decade of the twenty-first century, we could say that the long-term US interest rate market had been dysfunctional for a long time. We could identify the starting point as being the immediate aftermath of the Nasdaq bust and recession of 2000/01. In signalling that the rise in the Fed funds rate would be slow and gradual over a prolonged period (described by central bank watchers as a pre-commitment to a given rate path), the Greenspan Fed put an unusual dampener on long-term interest rates at the time—in hindsight the start of manipulation under the 2% inflation standard and a powerful impetus to the asset price inflation which started to form during that period. Many contemporary market critics, including senior monetary officials, attributed the “artificially low” long-term rates not to their own manipulations in the short-term rate markets but to such factors as the “Asian savings surplus”. Indeed, Federal Reserve speakers stimulated that particular speculative narrative followed widely by carry traders (including prominently the “Asian savings surplus”!) in search of term risk premium to bolster the meagre returns available in the money markets. (It is also possible that the only contained rise of long-term rates at this time reflected widespread concern that present asset inflation would end with a bust and that indeed the long series of Fed rate rises could end in speculative over-kill).
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The EU economy after COVID-19: Implications for economic governance – Maarten Verwey, Allen Monks
21 October

On 19 October 2021, the European Commission adopted a Communication relaunching the public consultation on the EU’s economic governance framework. This consultation had been put on hold in March 2020 in order to focus on the Covid-19 pandemic. The Commission communication assesses the implications of the changed circumstances for economic governance following the COVID-19 crisis and sets out additional questions for the public debate. All stakeholders are invited to engage in the debate, which must be wide-ranging and inclusive to build a consensus on the way forward well in time for 2023.
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***Why Walgreens is in Trouble in San Francisco and is Closing Some Stores: It’s Not Shoplifting, that’s an Artful Distraction from the Real Reasons – Wolf Richter
23 oktober

Caught up in the brick-and-mortar meltdown, it faces its own botched decisions of prior years and a market that has horribly turned against its pharmacies.
Walgreens has been making global headlines with its announcements that it would close some of its huge number of stores in San Francisco. Even after these closures, there are now 53 stores left, some of them only a few blocks from each other.
But no one paid attention to its SEC filings where it reported that it had already closed 595 stores in the US over the past two fiscal years through August 31, including some of the 200 Walgreens-branded stores that it said in 2019 it would close. This company is a store-closing machine.
There are broad reasons for that, including the brick-and-mortar meltdown and Walgreens declining revenues.
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The international dimension of central bank digital currencies: Open research questions – Massimo Ferrari, Arnaud Mehl, Fabio Panetta, Ine Van Robays
19 October

Central banks around the world are weighing the pros and cons of issuing their own digital currency. This column identifies open research questions around the international macro-financial dimension of central bank digital currencies, including what is different about them, and what the implications for international central bank cooperation are. Addressing these questions would not only push the frontier of knowledge, it would also provide the conceptual backbone and evidence that could usefully inform future policy decisions on CBDCs.
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Poor Americans’ Credit Card Usage Spikes As Their Savings Run Out – Tyler Durden
22 oktober

Last week we explained why the widely propagated myth that there is north of $2 trillion in “excess cash” savings spread evenly across the US population courtesy of Biden’s trillions, was nothing but a fake pipe dream: as we showed then when looking at cash holdings (checkable deposits and currency) from 1Q20-1Q21 across the income distribution, 65% of excess cash (cash accumulated above the 4Q19 level) is held among the top 20%, while just 35% was spread across the entire bottom 80% (the top 80% holds ~$1.4tn in excess savings and bottom 80% holds ~$800bn).
And in light of the recent feverish pace of consumer spending among the bottom 80%, we also said that much if not all of these cash savings had been spent.
Overnight, Bank of America indirectly confirmed this.
When looking at its latest debt and credit cars spending data, BofA chief economist Michelle Meyer observed that spending on credit cards among the lower income cohort has spiked with a 23% growth rate over a 2-year period, up from the summer average of 15%
And, obviously, with consumers ramping up their charging it means that their bank accounts (where those mythical excess savings would be found) this surge in credit card spending has come at the expense of debit card spending growth which has slowed notably over the last several weeks.
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How the West Pushed back the Frontiers of Death – Joakim Book
20 oktober

The world we come from had lots of death. Every society we know of before the mid-1800s or so saw more than one in four children die during their first year of life. Of those who made it through this first difficult year—through disease, malnutrition, famines, or natural disasters—another quarter or so died before they reached fifteen. Into the 1900s, you had to get into your sixties before your per year risk of death again was as high as it was in your first year of life.
Plenty of people died at later stages of life too. Human life itself, we might say, hung on by a thread, never further away from ending than a poor harvest or a festering wound.
When we cite numbers for life expectancy (usually in the midthirties before the year 1800), they largely capture this extreme mortality in the early years of life. Statistically, the deaths of young people have an outsized impact on the calculation of life expectancy, as it takes into account lifetime risks of death to a newborn in that year. While whose life matters most is a moral judgment and philosophical or religious quandary, children dying may be regarded as the worst tragedy that can befall a family, and so using a metric that’s very sensitive to that is far from unreasonable. Vaclav Smil, the energy theorist and prolific writer on how the modern world came to be, concludes that life expectancy still “might be the best single-variable indicator of overall quality of life.”
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***A Nation of Imposters – Charles Hugh Smith
22 October

That’s how we’ve become a nation of imposters: our imposter stock market hits a new high and the imposters cheer because it proves the scam is still working.
You’ve read the warnings about the proliferating imposter scams: scammers posing as “officials”, representatives of utilities or “a close friend of a family member” all exploit the fast-draining reservoir of trust in America to extract financial information out of the unwary marks.
I’m not sure what’s more remarkable: the depths of scammer perversity or the fact that some people can still be conned by claims of authority or friendship. Most are seniors, of course, as the elderly still retain an easy-to-scam trust in institutions and officialdom as a holdover from an era before trust was unraveled by wholesale self-serving deception.
The deeper problem is that America is now a nation of imposters. Everything that is presented as august and trustworthy is an imposter organization designed to enrich the few at the expense of the many via deception and the cloaking of self-serving skims and scams.
A useful tool to uncloaking imposters is to ask: cui bono, to whose benefit? Take the nation’s central bank, the Federal Reserve. It claims to be serving the public and the common good, but who actually benefits from its policies?
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“Idle Resources” Are Problems Caused by the Central Bank – Frank Shostak
18 oktober

Resources that are utilized to promote economic prosperity in normal times become underutilized during recessions. Some experts are of the view that what is required are policies which will increase the availability of credit to make greater use of underutilized resources. On this Ludwig von Mises wrote,
Here, they say, are plants and farms whose capacity to produce is either not used at all or not to its full extent. Here are piles of unsalable commodities and hosts of unemployed workers. But here are also masses of people who would be lucky if they only could satisfy their wants more amply. All that is lacking is credit. Additional credit would enable the entrepreneurs to resume or to expand production. The unemployed would find jobs again and could buy the products. This reasoning seems plausible. Nonetheless it is utterly wrong.1
The credit that is lacking is productive credit. Briefly, productive credit emerges when a wealth generator lends some of his wealth to another wealth generator. By giving up the use of the loaned wealth at present, the lender is compensated in terms of interest that the borrower agrees to pay.
As a rule the greater the expansion in wealth the lower the interest rate that the lender is likely to agree to accept, i.e., his time preference is likely to decline.
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GDP Tells Us Little about the Health of an Economy – Patrick Barron
20 oktober

The government and the mainstream media’s favorite economic statistic is gross domestic product (GDP). If GDP goes up, then the economy is doing well. If GDP shrinks, then the economy is doing poorly, or so it is assumed. It all seems so simple. But GDP tells us no such thing. The economy may be doing poorly when GDP rises. Likewise, the economy may be doing well when GDP falls. How can this be?
Although the official statistical components that make up GDP are rather complicated, the big picture is that GDP measures predominately consumer spending (for a detailed explanation of GDP’s many components, see Mark Brandly’s “Calculating GDP Correctly”). But consumer spending is not the sole use of money, and it may not be the most important.
Therefore, even in a sound money environment, it is possible for GDP to fall if people decide to increase the holding portion or savings/investing portion of their money. In those cases, prices will fall. If people decide to spend less now and save more, then the structure of production will change somewhat as resources flow from consumer items to production goods. Think fewer Big Macs and/or Frappuccinos and more copper mines and/or factories. The GDP followers will conclude that the economy is shrinking and that people are less wealthy, but the people themselves will not believe so. They will conclude that the fruits of their frugality are evident in rising savings accounts and investment portfolios. Austrian economists will say that people’s time preference has fallen, meaning that they desire more goods in the future and are willing to sacrifice current satisfactions in order to have more and/or different satisfactions in the future.
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Effectiveness of subsidy applications for small businesses: The case of Japan – Yuki Hashimoto, Kohei Takahashi
24 October

While large businesses in Japan have seen a gradual increase in labour productivity since the global financial crisis, the productivity of SMEs remains stagnant. This column investigates the effects of the Japanese government’s Business Sustainable Subsidy programme, launched in response to this situation, on SMEs’ performance. The findings suggest that application to the subsidy in itself promotes firms’ voluntary activities to address their business issues through external support and improves their productivity.
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Yes, They Are Coming for the Oil Companies – William L. Anderson
19 oktober

In his first year in office, President Joe Biden has made it absolutely clear that he wants to make the oil and natural gas industries disappear. While even a progressive like Biden knows that it would be economically (and, one would hope, politically) disastrous to destroy those industries during his brief term, nonetheless Biden is setting things into motion in which the regulatory and law enforcement apparatus of the central government are quietly but effectively declaring war on what has been one of the most productive industries in US history.
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Contract labour and firm growth in India – Marianne Bertrand, Chang-Tai Hsieh, Nick Tsivanidis
20 October

Changes in contract labour regulation were introduced in India in the late 1940s. The hope was that controlling whether firms could downsize would reduce mass job losses as large British companies left the country post-independence. This column explores the effect of the Industrial Disputes Act on firms of different sizes. The authors find that smaller firms did not see much change, but larger firms did employ fewer contract workers as a result. However, this effect was driven by firms exploiting a loophole, rather than the law itself.
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Hit by Shortages, Vehicle & Parts Production Plunged to Lowest since Lockdown. Oil & Gas Has New Script – Wolf Richter
18 oktober

Industrial production over the long term is a sad sight, powered by offshoring.
Industrial production – manufacturing output, oil-and-gas extraction, mining, and gas and electric utilities – fell 1.3% in September from August, pushed down by production of motor vehicles and parts, which plunged 7.2% for the month, and by oil and gas extraction, which fell 3.8%.
Manufacturing of motor vehicles and parts has been hobbled all year by supply semiconductor shortages that have led to rotating shutdowns of parts manufacturing operations and assembly plants. The shortages continued to get worse – despite assurances earlier this year that they would be over with by Q4.
The manufacturing production index for motor vehicles and parts, adjusted for inflation, dropped to a value of 85.4.
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Governments Love Inflation, and They Won’t Do Anything to Stop It – Daniel Lacalle
19 oktober

No government looking to massively expand its size in the economy and monetize a soaring deficit is going to act against rising prices, despite claiming the opposite.
One of the things that surprises citizens in Argentina or Turkey is that their populist governments always talk about the middle classes and helping the poor, yet inflation still soars, making everyone poorer.
Inflation is the gradual erosion of the purchasing power of the currency. Governments will always use different excuses to justify inflation: soaring demand, “supply chain disruptions,” or evil corporations’ greed. However, most of the times these are excuses. Inflation is always a monetary phenomenon. Prices soar because money supply rises massively above real output and real money demand.
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***America Is Now a Kleptocrapocracy – Charles Hugh Smith
20 October

I hope everyone here is hungry because the banquet of consequences is being served.
I’ve coined a new portmanteau word to describe America’s descent: kleptocrapocracy, a union of kleptocracy (a nation ruled by kleptocrats) and crapocracy, a nation drowning in a moral sewer of rampant self-interest in which the focus is cloaking all the skims, scams, rackets and bezzles in some virtuous-sounding garb, a nation choking on low-quality junk ceaselessly hawked by robocalls, spam, phishing and Big Tech manipulation.
It’s little wonder trust has collapsed in America: the only thing we can trust is whatever’s being pitched is deceptively packaged to mask the self-interest and profiteering of the perps.
The stench from the decomposing carcasses of once-trusted institutions is everywhere. Insiders and the marketers they pay to cloak their grifting are banking bennies at the expense of hapless debt-serfs who fell for the scam. You need these three costly medications, and then when the side-effects kick in, you need six more to counteract the first three, and so on. But trust us; your “health” (heh) is our only concern. Uh, sure.
Why do state universities need to market themselves like a roto-rooter service? Maybe because they’re both working the sewers: state universities are exploiting the student loan sewers, desperate to recruit another batch of debt-serfs who fell for the 3-card monte game in which a lifetime of debt is exchanged for a credential of dubious value.
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