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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The Fallacy of Climate Financial Risk – John H. Cochrane
21 juli
The idea that climate change poses a threat to the financial system is absurd, not least because everyone already knows that global warming is happening and that fossil fuels are being phased out. The new push for climate-related financial regulation is not really about risk; it is about a political agenda.
STANFORD – In the United States, the Federal Reserve, the Securities and Exchange Commission, and the Department of the Treasury are gearing up to incorporate climate policy into US financial regulation, following even more audacious steps in Europe. The justification is that “climate risk” poses a danger to the financial system. But that statement is absurd. Financial regulation is being used to smuggle in climate policies that otherwise would be rejected as unpopular or ineffective.
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We Can Have Low Interest Rates Or Robust Growth. But Not Both – Daniel Lacalle
24 juli
Central banks should know by now that you cannot have negative interest rates with low bond yields and strong growth. One or the other.
Central banks have chosen low bond yields at any cost, despite all the evidence of stagnation ahead. This creates enormous problems and perverse incentives.
It is not a surprise that markets have bounced aggressively, driven by the tech sector, after a slump based on concerns about the pace of economic growth. Stimulus package effects are increasingly short, and this was pretty evident in the poor figures of industrial production and the ZEW survey gauge of expectations. The same can be said about a weakening ISM index in the United States. United States ISM Services PMI came in at 60.1, below expectations (63.5) in June, precisely in the sector where the recovery should be strongest.
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Shortest Recession In History Sets Up Next Recession – Lance Roberts
23 juli
It’s now official that the recession of 2020 was the shortest in history.
According to the National Bureau of Economic Research, the contraction lasted just two months, from February 2020 to April 2020. However, during those two months, the economy fell by 31.4% (GDP), and the financial markets plunged by 33%. Both of those declines, as shown in the table below, are within historical norms.
Here it is graphically. The chart shows the historical length of each recession and the corresponding market decline.
However, while the effects of the “recession” were all within historical norms, the recession itself was not.
Let me explain.
A Non-Standard Recession
The statement from the NBER is as follows:
“In determining that a trough occurred in April 2020, the committee DID NOT conclude that the economy has returned to operating at normal capacity. The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession associated with the February 2020 peak. The basis for this decision was the length and strength of the recovery to date.”
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Reforming the macroprudential regulatory architecture in the US – Kathryn Judge, Anil Kashyap
21 juli
That a shock the size of the Covid-19 pandemic would trigger distress in financial markets is far from surprising. What is surprising is how much of the distress arose in domains that could have been identified posing a potential threat to stability well before the pandemic hit. This column explores how the US financial regulatory regime is falling short and proposes reforms to increase the likelihood that policymakers will identify and address threats to stability – before they harm the real economy.
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How Much Of A Risk Is The Coming Debt Limit – Tyler Durden
23 juli
With Bloomberg headlines hitting moments ago and reminding us that it’s time for the periodic debt ceiling drama, as Janet Yellen said in a letter to Congress leadership that the Treasury will start special measures due to debt limit, and warning that the now familiar special steps could run out soon after Congress recess ends, it’s time to remind readers what all the drama is (or rather will be) about, while also reminding that total US debt will hit $30 trillion in about six months.
With the now mandatory late November “kink” starting to emerge in T-Bills as some in the market try to arb out the risk – modest as it may be – of a technical US default…
… Goldman’s chief political economist Alec Phillips writes that the debt limit looks likely to become a constraint for the Treasury in October although November is also likely. According to a Congressional Budget Office (CBO) estimate released on July 21, the Treasury will exhaust its ability to finance government activities in October or November (Goldman’s assessment is that the debt limit will need to be raised by early October).
By way of background, Senate Republican leader McConnell has stated that no Republican would vote for an increase in the debt limit (spoiler alert: they will as they always have in the past although some crisis may be required first). Since Democrats are unlikely to want to take sole responsibility for increasing the limit, Democratic leaders might still insist on passing an increase with bipartisan support, most likely as part of legislation to extend government spending authority after September 30.
Neither the CBO estimate nor McConnell’s statement was particularly surprising, so they are unlikely to affect the outlook for the fiscal package congressional Democrats hope to pass later this year.
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The aftermath of sovereign debt crises – Rui Esteves, Seán Kenny, Jason Lennard
20 juli
There is little consensus on the macroeconomic impacts of sovereign debt crises, despite the regularity of such events. This column quantifies the aggregate costs of defaults using a narrative approach on a large panel of 50 sovereigns between 1870 and 2010. It estimates significant and persistent negative effects of debt crises starting at 1.6% of GDP and peaking at 3.3%, before reverting to trend five years later. In addition, underlying causes matter. Defaults driven by aggregate demand shocks result in short-term contractions, whereas aggregate supply shocks lead to larger, more persistent losses.
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Consumer Expectations Don’t Tell Us Much about the Real State of the Economy – Frank Shostak
20 juli
In order to gain insight into the current and future state of an economy, many economists hold that it is helpful to get the view on this from consumers and businesspersons. Randomly selected consumers and businesspersons are asked to provide their views about the current and the future state of the economy.
Thus if the majority of those surveyed express optimism it is regarded as good news for the economy ahead. Conversely, if the majority of surveyed are pessimistic it is taken as a bad omen for future economic activity.
Is it valid to hold that surveys can tell us where the economy is heading? Moreover, why should we regard an opinion supported by a large percentage of people as any more credible than the view of a particular individual?
The prevailing view is that the knowledge regarding possible future economic conditions is dispersed. It is held that a large group of people is likely to have more information than any one individual.
Therefore, the chances of any individual obtaining an accurate picture of the economy are thus very low.
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The dollar, the yen, or the renminbi? Invoicing currency choices by Japanese overseas subsidiaries – Takatoshi Ito, Satoshi Koibuchi, Kiyotaka Sato, Junko Shimizu, Taiyo Yoshimi
23 juli
The currency a firm chooses to invoice in reveals lessons on the prominence of that currency in the international sphere. This column presents survey data from Japanese overseas subsidiaries, highlighting how the use of Asian currencies has been growing steadily. The authors show that among Asian local currencies, Chinese renminbi and Thai baht are the most used currencies by Japanese subsidiaries. If these countries become increasingly important destination markets for regional countries, local currencies will be used more as trade invoice currency in Asia.
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***While Fed Blows Off Inflation, Hawkish Bank of Russia Shocks & Awes with Rate Hikes, Sees “Persistent” & “Prolonged” Inflation – Wolf Richter
23 juli
But the US and Russia have similar red-hot inflation rates.
In Russia, the official rate of inflation was 6.5% in June. In the US, the official rate of inflation as measured by CPI was 5.4% in June. The CPI-W, which is used for the cost-of-living-adjustments to Social Security payments, was 6.1%. You see, there is barely any difference in inflation between Russia and the US.
The Bank of Russia sees the “persistent factors” to inflation, and it has therefore been cracking down on inflation. The Fed has decided to be in official denial about the persistent factors, is brushing them off as “temporary,” and is letting inflation rip.
Today’s rate hike would have been shock and awe if Bank of Russia Governor Elvira Nabiullina hadn’t warned on June 28 of a possible shock-and-awe hike of up to 1 percentage point. Today the Bank of Russia followed through: it hiked its policy rate by 1 percentage point to 6.5% (from 5.5% previously).
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Fiat Money Economies Are Built on Lies – Thorsten Polleit
20 juli
Now and then, it pays to take a step back to get a broader perspective on things, to look beyond the daily financial news, to see through the short-term ups and downs in the market to find out what is really at the heart of the matter. If we do that, we will not miss the fact that we are living in the age of fiat currencies, a world in which basically everything bears their fingerprints: the economic and financial system, politics—even people’s cultural norms, values, and morals will not escape the broader consequences of fiat currencies.
You may not notice it in your daily use of fiat currencies—that is, for instance, when receiving wages, buying goods and services, paying down mortgages, depositing money with the bank for saving purposes—that something is terribly wrong with fiat currencies, be it in the form of the US dollar, the euro, the Chinese renminbi, the Japanese yen, the British pound, or the Swiss franc. However, the truth is that all these fiat currencies suffer from severe economic and ethical flaws, which are actually not difficult to understand.
Fiat currencies are produced by central banks and commercial banks’ credit expansion. In fact, central banks in cahoots with commercial banks increase the outstanding money supply by extending loans to firms, private households, and government entities. It amounts to money creation from thin air or—in a way—counterfeiting money. Issuing new fiat currencies sets into motion a boom, an illusion of prosperity. Consumption and investment expand, the economy enjoys higher corporate profits, increased employment, rising stock, housing prices, etc.
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After Slashing 33% of Workers in 6 Years, Railroads Complain about Labor Shortages, amid Uproar over Slow Shipments – Wolf Richter
22 juli
“No way did I realize how difficult it was going to be to try and get people to come to work these days”: CEO of CSX.
So there are few hiccups in the US economy right now. James Foote, the chief executive of CSX, one of the largest railroads in the US, put it this way during the earnings call yesterday (transcript by Seeking Alpha):
“I’ve never seen any kind of a thing like this in the transportation environment in my entire career where everything seems to be going sideways at the same time,” he said.
“In January when I got on this [earnings] call, I said we were hiring because we anticipated growth. I fully expected that by now we would have about 500 new T&E [train and engine] employees on the property,” he said. “No way did I or anybody else in the last six months realize how difficult it was going to be to try and get people to come to work these days.”
“It’s an enormous challenge for us to go out and find people that want to be conductors on the railroad, just like it’s hard to find people that want to be baristas or anything else, it’s very, very difficult,” he said.
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***America Has Lost the Trade War with China, and the Real Pain Has Yet to Begin – Charles Hugh Smith
23 juli
Corporate America sacrificed national interests in service of greed, and so did the U.S. government.
As we all know, the source of Corporate America’s unprecedented explosion in profits in the 21st century is the offshoring of manufacturing to China. If you doubt this, please study the chart below of corporate profits. Apologists claim many excuses in an attempt to evade the central role of offshoring production to China, but they all ring hollow: no, it wasn’t increasing productivity or automation or Federal Reserve magic, it was shipping production to China and other low-labor-cost nations.
Whether we like to admit it or not–mostly not–the American economy is entirely dependent on manufacturing in China. America’s short-sighted obsession with increasing profits to fund buybacks and golden parachutes for corporate insiders and vast fortunes for financiers has led to a dangerous dependency that has handed China tremendous leverage, which China is now starting to make use of. (And why not? Wouldn’t the U.S. start using the same leverage if it could?)
A long-time U.S. correspondent who prefers to remain anonymous for obvious reasons recently shared his experiences with parts shortages and price increases from previously reliable suppliers in China. Here is his account of the disruptive shift in the supply chain of essential parts from China to the U.S.
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Paying People Not to Work Won’t Make Us Richer – Paul T. Prentice
20 juli
One of the most important principles of economics is that people respond to incentives. You get more of whatever you incentivize. You get less of whatever you disincentivize. This is irrefutable. The supplemental unemployment payment does both—it incentivizes people not to work, and simultaneously disincentivizes them from working.
The number of people who have dropped out of the labor force in Colorado, those who are not actively seeking employment, remains near record highs even as open jobs go begging. Employers cannot find sufficient workers to restart their businesses, or to expand existing operations back to full capacity. They face higher costs by having to entice people out of unemployment. After a full year of partial economic lockdown in Colorado, this is holding back our recovery.
According to U.S. government data, total employment in Colorado has yet to return to pre-lockdown levels. Personal income in Colorado has yet to return to pre-lockdown levels. Real GDP in Colorado has yet to return to pre-lockdown levels. Furthermore, employment and income losses are concentrated among the poor and minorities. The last thing they need is an increased incentive not to work.
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***The impacts of the shift to telemedicine – Dan Zeltzer, Liran Einav, Joseph Rashba, Ran Balicer
21 juli
The use of telemedicine rose sharply under the COVID-19 pandemic, and in the coming years we are likely to see more healthcare delivery that mixes in-person with remote care. But concerns remain over whether remote care might reduce care quality or increase costs. This column examines the effect of increased access to telemedicine on care cost and outcomes using data from Israel around the country’s first lockdown in March and April 2020. Access to telemedicine results in a slight increase in primary care use and no significant increase in overall costs. There is no evidence for decreased accuracy or increased likelihood of adverse events.
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Bond Market Has Been Clueless about Inflation for Decades, Now More so Than Ever. The Meme the Drop in Yields = End of Inflation is a Fantasy – Wolf Richter
24 juli
Even before QE, the 10-year yield lagged years behind CPI, up and down. And now, the Fed manipulates the market with QE.
The 10-year Treasury yield was 1.75% at the end of March, but by July 19, it had dropped to 1.19%, and on Friday it closed at 1.30%. This drop in the yield occurred even as inflation spiked. On a month-to-month basis for the past three months, and annualized, the Consumer Price Index spiked by 9.5%, the red-hottest since 1982. Year-over-year, CPI in June jumped 5.4%.
But the new meme now is that the drop in the 10-year Treasury yield is telling us the spike in inflation is nothing to worry about, and that by next early year, CPI will be at 1% or 1.5% or whatever. The meme now is that the bond market is right and CPI is wrong or something.
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Lacy Hunt On Debt And Friedman’s Famous Quote Regarding Inflation & Money – Mish Shedlock
23 juli
Lacy Hunt takes on the widespread belief that sustained inflation is on the way in his latest quarterly review…
Hoisington Quarterly Review and Outlook 2nd Quarter 2021
Here are some snips to the latest at Hoisington Management Quarterly Review (Emphasis Mine).
Too Much Debt
In highly indebted economies, additional debt triggers the law of diminishing returns. This fact is confirmed when the marginal revenue product of debt (MRP) falls, where MRP is the amount of GDP created by an additional dollar of debt. In microeconomics, when debt is already at extreme levels, a further increase in debt leads to an increase in the risk premium on which a borrower will default suggesting that the bank or other lender will not be repaid.
Combining both the falling MRP with a declining loan to deposit (LD) ratio, results in a reduction in the velocity of money. In terms of the impact on monetary activities, a drop in the LD ratio means that more of bank deposits are being directed to the purchase of Federal, Agency and state and local securities in lieu of private sector loans. The macroeconomic result is that funds are shifted to sectors that are the least productive engines of economic growth and away from the high multiplier ones.
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Monetary policy through COVID-19: Pushing on a string – the case of Latin America and the Caribbean – João Ayres, Pablo Andrés Neumeyer, Andrew Powell
19 juli
The ‘right’ monetary policy response to COVID-19 has depended on any number of factors for central banks across the world. This column argues that some central banks in Latin American and Caribbean went beyond accommodating the increased demand for liquidity, inducing monetary injections that then returned through excess bank reserves and sterilisation liabilities for those central banks that fixed an interest rate, and through sales of international reserves for those that favoured stable exchange rates. The authors also outline some of the risks confronting central banks for the months ahead.
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How Breakdown Cascades Into Collapse – Chalres Hugh Smith
19 juli
Maintaining the illusion of confidence, permanence and stability serves the interests of those benefiting from the bubbles and those who prefer the safety of the herd, even as the herd thunders toward the precipice.
The misconception that collapse is an all or nothing phenomenon is common: Either the system rights itself with a bit of money-printing and rah-rah or it collapses into post-industrial ruin and gangs are battling over the last stash of canned beans.
Neither scenario considers the fragility and resilience of the socio-economic system as a whole. It is both far more fragile than the believers in the permanence of the waste is growth model grasp and more resilient than the complete collapse prognosticators grasp.
The recent relatively mild logjams in global supply chains of essentials are mere glimpses of precariously fragile delivery-supply systems. These can be understood as bottlenecks that only insiders see, or as unstable nodes through which all the economy’s connections run. Put another way, the economy’s as a network appears decentralized and robust, but this illusion vanishes when we consider how the entire economy rests on a few unstable nodes.
One such node is the delivery of gasoline and fuels. It’s such an efficient and reliable system that 99.9% of us take it for granted: there will always be plenty of gasoline at every station, the tanks of jet fuel will always be topped off, and so on.
The 0.1% know that this system, once disrupted, would knock over dominoes all through the economy.
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***“No Resistance” to Price Increases – Wolf Richter
20 juli
The Restaurant Industry Reacts to a Messed-Up Economy Plagued by Shortages & Transportation Snags.
These reports are coming from all directions, from small mom-and-pop operations to large corporations: Input costs are surging, wages that companies have to pay to attract workers are rising, transportation costs are surging amid driver shortages, supply chains are tangled up and there are delays and bottlenecks, and suppliers suddenly can’t deliver because they’ve run out of something, and companies are furiously juggling these issues, and they’re raising their prices to make up for those higher costs, and there is no resistance to these higher prices.
Consumers mostly just pay whatever – when before, higher prices would have entailed the loss of some customers and some revenues, which might have forced companies to back off those prices.
Chipotle Mexican Grill was the latest company to confirm this phenomenon of higher costs and higher prices, and no resistance by consumers to higher prices.
It had raised prices by 3.5% to 4% in order to deal with higher labor costs, and so far, there has been “no resistance” to higher prices, CFO Jack Hartung told analysts during the earnings call today.
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“This Is The Biggest Bubble I’ve Seen In My Career” – Dems’ Infrastructure Spending Could Lead To Devastating Crash, Druck Warns – Tyler Durden
23 juli
This isn’t the first time billionaire investor Stanley Druckenmiller has warned that US markets are caught up in a “raging mania” fostered by the trillions of dollars in government spending. Druck, an acolyte of George Soros known for his macro investing prowess (even as he complains that contemporary Fed-backstopped markets “make no sense”) is a frequent guest on CNBC. But on Friday morning, he made a brief appearance on MSNBC’s Morning Show with Stephanie Ruhle, who seemed ill-equipped to respond to Druck’s arguments about why the Dems’ multi-trillion two-part infrastructure plan will end up hurting America’s poorest citizens.
As Druck explains, the “V-shaped” economic recovery has been “the sharpest recovery in history,” noting that it took 10 years for the American economy to achieve the same gains following the start of the Great Depression.
The problem is that the nearly $6 trillion allocated by Congress to combat the economic impact of COVID has been spent after the economy already finished recovering. The accelerating pace of inflation, and inability of certain businesses to hire lower-wage workers, are but byproducts of this.
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The ECB’s New Inflation Plan Is Like the Old Plan. But Worse – Brendan Brown
17 juli
Old, absurd, and unfit for purpose; how else to describe the “new” monetary framework for euro monetary policy presented by ECB Chief Lagarde amidst much fanfare on Thursday, July 8?
Why old? The “new” framework is remarkably similar to that unveiled in May 2003.
Why absurd? The main rationale put forward for the framework is to work around a problem of the “zero bound”. That problem, however, is of the ECB’s own making.
Why unfit for purpose? Chief Christine Lagarde tells us that the review has been undertaken to make sure that “our monetary policy strategy is fit for purpose both today and in the future”. But she considers no critique of that strategy and advances no rebuttal of any. She does not explain why she expects better results from a plan that so similar to the strategy that’s been pursued during the past quarter century.
What Is New in the Plan?
The ECB has upped its inflation target.
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***Competition from online platforms and the impoverishment of newspapers – Milena Djourelova, Ruben Durante, Gregory J. Martin
25 juli
Newspapers have lost significant advertising revenues to competition from online platforms. How this affects local newspapers’ ability to inform citizens about political matters is important for democratic politics. This column studies the impact of the introduction of Craigslist on US newspapers and its political implications. After the opening of a Craigslist in a county, local newspapers cut staff, disproportionately affecting political desk editors. News coverage of local Congressional representatives significantly decreased, and in elections, voters favoured more ideologically extreme candidates.
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Creditors Foreclose on Another Mall of Simon Property Group, Face Massive Loss – Wolf Richter
21 juli
As largest mall landlord in the US sheds its malls, CMBS holders, such as bond funds and pension funds, take the losses.
After Simon Property Group, the largest mall landlord in the US [SPG], stopped making monthly interest payments in June 2020 on a $100-million loan backed by the 1.1 million square-foot Montgomery Mall in North Wales, Pennsylvania, the slow gears toward foreclosure began grinding. On August 31, a formal notice of default was issued, followed by a loan acceleration notice a month later. Now it’s over.
The creditors have foreclosed on the mall and have obtained a judgement of $119 million, including principal, unpaid interest, and expenses, against the Simon entity that owned the mall, Mall at Montgomery LP, according to court documents, reported by Philadelphia Business Journal.
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