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 Much Control Does the Central Bank Have over Interest Rates? – Frank Shostak
23 december
It is a commonly accepted view these days that the central bank is a key factor in the determination of interest rates. By this way of thinking, the Fed determines the entire interest rate structure by influencing the short-term interest rates.
The central bank influences the short-term interest rates by means of the monetary liquidity. Thus, by buying assets the Fed adds to the monetary liquidity, thereby lowering rates. When it sells assets, the exact opposite takes place.
According to popular thinking, the Fed also influences the long-term rates, which are seen as an average of current and expected short-term interest rates.
If today’s one-year rate is 4 percent and the next year’s one-year rate is expected to be 5 percent, then the two-year rate today should be 4.5 percent ((4 + 5)/2 = 4.5%). Conversely, if today’s one-year rate is 4 percent and the next year’s one-year rate is expected to be 3 percent, then the two-year rate today should be 3.5 percent ((4 + 3)/2 = 3.5%).
——————————————————————————————————
Gold And Silver Prospects For 2022 – Alistair Macleod
23 december
It has been a disappointing year for profit-seeking precious metal investors, but for those few of us looking to accumulate gold and silver as the ultimate insurance against runaway inflation it has been an unexpected bonus.
After reviewing the current year to gain a perspective for 2022, this article summarises the outlook for the dollar, the euro, and their financial systems. The key issue is the interest rate outlook, and how that will impact financial markets, which are wholly unprepared for the consequences of the massive expansions of currency and credit over the last two years.
We look briefly at geopolitical factors and conclude that Presidents Putin and Xi have assessed President Biden and his administration to be fundamentally weak. Putin is now driving a wedge between the US and the UK on one side and the pusillanimous, disorganised EU nations on the other, using energy supplies and the massing of troops on the Ukrainian border as levers to apply pressure. Either the situation escalates to an invasion of Ukraine (unlikely) or America backs off under pressure from the EU. Meanwhile, China will continue to build its presence in the South China Sea and its global influence through its silk roads. Less appreciated is that China and Russia continue to accumulate gold and are ditching the dollar.
And finally, we look at silver, which is set to become the star performer against fiat currencies, driven by a combination of poor liquidity, ESG-driven industrial demand and investor realisation that its price has much catching up to do compared with lithium, uranium, and copper. The potential for a fiat currency collapse is thrown in for nothing.
——————————————————————————————————
The Ghost of Christmas Inflation – John H. Cochrane
23 december
Inflation continues to surge. From its inflection point in February 2021 to last month, the US consumer price index has grown 6% – an 8% annualized rate.
The underlying cause is no mystery. Starting in March 2020, the US government created about $3 trillion of new bank reserves (an equivalent to cash) and sent checks to people and businesses. The Treasury then borrowed another $2 trillion or so and sent even more checks. The total stimulus comes to about 25% of GDP, and to around 30% of the original federal debt. While much of the money went to help people and businesses severely hurt by the pandemic, much of it was also sent regardless of need, intended as stimulus (or “accommodation”) to stoke demand. The goal was to induce people to spend, and that is what they are now doing.
Milton Friedman once said that if you want inflation, you can just drop money from helicopters. That is basically what the US government has done. But this US inflation is ultimately fiscal, not monetary. People do not have an excess of money relative to bonds; rather, people have extra savings and extra apparent wealth to spend. Had the government borrowed the entire $5 trillion to write the same checks, we likely would have the same inflation.
——————————————————————————————————
The Fed’s Dovish “Tapering” and the ECB – Daniel Lacalle
22 december
This week, the Federal Reserve gave the most dovish “hawkish” statement ever, an apparent aggressive tapering that, in reality, means maintaining very low rates and massive repurchases for longer.
Inflation has skyrocketed and aggressive monetary policy is the key factor in understanding it. I already explained it in my article “The Myth of Cost-Push Inflation.” The Federal Reserve has finally recognized this and has made a U-turn in its policy of maintaining stimulus despite inflationary pressures.
The Federal Reserve now expects core inflation to remain above 2.7 percent in 2022 (previously it expected 2.3 percent) and above 2 percent in 2023 and 2024. That means the Consumer Price Index will probably remain above 3–4 percent in that period. Taking into account that it will close the year above 6 percent, we are talking about an accumulated inflation of more than 14 percent in three years, a great risk for the recovery, real wages, family savings, and investment.
The Federal Reserve has at least acted, and will reduce its monthly sovereign bond purchases to $20 billion and $10 billion a month of mortgage-backed securities. In addition, it will accelerate the rate increases to three hikes in 2022, three in 2023, and two in 2024 to reach a 2.1 percent reference rate in 2024.
According to CNBC, the Fed will be buying $60 billion of bonds each month starting in January, half the level prior to the November taper and $30 billion less than it had been buying in December. The Fed was tapering by $15 billion a month in November, doubled that in December, and will accelerate the reduction further come 2022.
Now read again. The so-called aggressive tapering means monthly repurchases of $60 billion.
——————————————————————————————————
***Watch the Top 5%–They’re the Key to the Whole Economy – Charles Hugh Smith
22 december
Go ahead and become dependent on asset bubbles and the free spending of the top 5%, and optimize your economy to serve this “growth,” but be prepared for the consequences when the costs of this optimization and dependency come due.
Here’s the problem with concentrating most of the income and wealth in the top 5%: the whole economy now depends on their spending and “the wealth effect” of bubbles driving that spending. As the charts below show, the top tier of households own the vast majority of the wealth and take home roughly half of all income, including virtually all (97%) the income derived from capital.
By inflating an enormous everything bubble, the Federal Reserve and other central banks have inflated the “wealth” of this top tier. This was of course the plan: by artificially inflating asset bubbles, the central bankers believed that those seeing their net worth expand would loosen their purse strings and borrow and spend freely: the wealth effect.
The problem with relying on the the wealth effect is that if wealth has concentrated in the top, then only the top will benefit. The bottom 50% own virtually no capital (see chart below) and the modest wealth owned by the bottom 90% generates a mere 3% of all income derived from assets (stocks, bonds, real estate, etc.).
——————————————————————————————————
Understanding inflation risks in the US and the euro area – Jasper McMahon, Lucrezia Reichlin, Giovanni Ricco
22 december
The Federal Reserve has recently changed monetary stance and signalled a faster than anticipated pace of monetary tightening, while the ECB is more dovish. This column applies a statistical model to recent data on oil prices, inflation, expectations, labour markets and output, and finds that the model’s forecasts support the difference in stance of the two central banks. Based on an assessment of cyclical inflation being mostly driven by transitory energy price disturbances and a very small Phillips curve contribution in both jurisdictions, it predicts that in a year from now euro area HICP inflation will still be below the 2% target, at 1.75%, while in the US CPI inflation will be above, at 2.75%.
——————————————————————————————————
Glorious Effects of Money-Printing Bail Out Manhattan Luxury Housing Market in 2021, after it Fell on Hard Times – Wolf Richter
24 december
“Perhaps the biggest pandemic trend was this: The rich got richer — and they also bought bigger”: Olshan Realty.
We knew this was coming: The huge bout of global money-printing and interest-rate repression that created historic asset price inflation and made a small portion of rich people immensely richer has had a big impact on luxury real estate in Manhattan. “Luxury” in Manhattan is defined as $4 million or more for a condo, co-op, or townhouse.
The impact was on sales volume – lots of deals were made. Many of those units had been sitting on the market for years. And many deals were made after sizeable haircuts as global investors unloaded, and as developers were finally able to sell new units they’d been sitting on for years.
And “mostly New York metro area buyers” stepped in, according to Olshan Realty, “riding the wave of lower prices, low interest rates, and surging stock market, and the belief that New York would come back.”
——————————————————————————————————
Inflation narratives – Peter Andre, Ingar Haaland, Chris Roth, Johannes Wohlfart
23 december
Inflation has recently surged in both the US and the EU. This column uses responses from surveys of a representative sample of the US population as well as academic economists and US firm managers to show that households and managers are more likely than experts to think that the current surge in inflation will be persistent. Since the narratives individuals use to explain movements in inflation appear central to whether inflation expectations remain anchored, communication strategies by policymakers could put emphasis on specific narratives that highlight that inflationary pressures are unlikely to persist.
——————————————————————————————————
No, Sen. Warren, Greed Is Not Causing Inflation – Daniel Lacalle
20 december
Senator Elizabeth Warren recently stated that rising prices were due to corporations increasing their profits. “This isn’t about inflation, this is about price gouging for these guys.” It is simply incorrect.
No, corporations have not doubled their profits, and rising prices are not due to the evildoings of businesses. If evil corporations are to blame for rising prices in 2021, as Elizabeth Warren says, I imagine that they were magnanimous and generous corporations when there was low or no inflation, right?
Inflation is the tax of the poor. It destroys the purchasing power of wages and engulfs the little savings that workers accumulate. The rich can protect themselves by investing in real assets, real estate and financial, the poor cannot.
Inflation is not a coincidence, it is a policy.
——————————————————————————————————
Discovering the political Phillips curve: Parliamentary voice on ECB monetary policy – Federico Maria Ferrara, Donato Masciandaro, Manuela Moschella, Davide Romelli
22 december
What are central banks held accountable for by elected officials? This column employs structural topic models on a new dataset of the Monetary Dialogues between the Members of the European Parliament and the President of the ECB to reveal differences in how MEPs keep the ECB accountable for its primary objective of price stability. It also shows that unemployment is a key explanatory variable for the political voice articulated by individual MEPs in accountability settings. These findings reveal the existence of a ‘political’ Phillips curve reaction function.
——————————————————————————————————
***Sleepwalking Into the Abyss in 2022 – Charles Hugh Smith
26 december
What would be truly optimistic would be to surrender our dependence on asset bubbles and malinvested debt to prop up an unstable delusion of effortless “wealth.”
The most sacred liturgy of American culture is to always be positive and optimistic. The greatest taboo is breaking this sacred duty to say something upbeat and optimistic; it is acceptable (barely) to make awkwardly negative observations, but only if you immediately follow up the negative comments with a treacly, double-serving of sugary optimism: for example, inflation is transitory, the economy is growing strongly, wages are rising, etc.
And so we sleepwalk into 2022, ill-prepared to deal with reality which most annoyingly continues responding to systemic dynamics no matter how much sugary optimism is spread around.
The endless servings of sugary optimism serve several purposes:
1. They create an appealing illusion that systemic problems can be solved without materially changing the status quo or demanding any sacrifices.
2. They mask the inconvenient reality that the status quo is incapable of solving systemic problems because doing so would demand sacrifices of those skimming the vast majority of the benefits of the status quo, i.e. the wealthy and powerful.
3. They mask the eqnormous sacrifices being imposed on the bottom 90% to keep the status quo unchanged, i.e. benefiting the few at the expense of the many.
4. The demand to always be sugar-high optimistic is a handy tool to bludgeon critics who point out the systemic failure of the status quo as alarmists, doom-and-gloomers, etc.
——————————————————————————————————
Pandemic inflation and nonlinear, global Phillips curves – Kristin Forbes, Joseph Gagnon, Christopher G. Collins
21 december
COVID-19 and the corresponding policy responses have generated uncertainty over inflation around the world. This column shows that when output exceeds potential, the upward pressure on prices (from reductions in slack) is far greater than any equivalent downward pressure (from increases in slack) when output is below potential. This nonlinearity in the Phillips curve, combined with the impact of global factors such as global commodity prices, global slack, exchange rates, and producer price competition, have played an important role in driving the sharp swings in inflation rates during COVID.
——————————————————————————————————
***A Slave-Based Economy Is Nothing Like a Dynamic Capitalist One – Lipton Matthews
23 december
The “new history of capitalism” has reprised the debate on the economic viability of slavery by rebranding it as an institution with a propensity for innovation and long-term growth. This group of scholars attempts to recast slavery as an institution at the very center of capitalism and the Industrial Revolution. Thus, this school of thought relies on promoting slavery as essentially a capitalistic institution with the same characteristics of entrepreneurship and innovation we have long associated with capitalism. For example, Daniel B. Rood in The Reinvention of Atlantic Slavery: Technology, Labor, Race, and Capitalism in the Great Caribbean challenges readers to recast slavery as a dynamic institution with potential for disruption, rather than as a stagnant system with little inclination for ingenuity.
Yet Rood, like many other “new history” writers before him, greatly underestimates the degree to which slavery-based institutions avoided the dynamism of capitalism in order to preserve a society of status.
Rood is indeed accurate in arguing that slave economies could appropriate new technologies, and he offers compelling examples of innovations in product design and management. However, there is still a gap to be filled in the historiography of slavery because frequently writers fail to afford primacy to the motivations underpinning invention in slave societies. In slave societies technology is employed to increase the quantity commodities for the export market. Hence incentives emerge to adopt technologies that can augment the efficiency of the manufacturing process.
——————————————————————————————————
Higher profit taxes reduce firms’ R&D activities – Andreas Lichter, Max Löffler, Ingo E. Isphording, Thu-Van Nguyen, Felix Poege, Sebastian Siegloch
21 december
Studies have shown that targeted R&D tax incentives – such as tax credits for R&D spending – induce firms to conduct more R&D. However, little is known about the effects of general profit taxes on firm-level R&D spending and innovation output. This column presents evidence from Germany that points to sizeable negative effects of increasing profit taxes on firms’ R&D spending and patents. However, slashing business tax rates may not be the most efficient policy instrument to spur innovation altogether.
——————————————————————————————————
Western Economies Are Self-Destructing with Inflation, Debt, and Taxes – Nikola Kedhi
24 december
Although reluctantly, current central bank governors and respected economists have ramped up their warnings that inflation is here to stay. However, while it took officials a considerable period of time to admit the inflationary threat, despite the signs and warnings, they are failing to name its root causes. Inevitably, and anew, a wrong diagnosis will lead to repeated erroneous remedies, which will continue the self-destructive, complacent vicious cycle our Western economies have entered.
The consensus among officials seems to be that this unexpected inflation is solely due to economies being forced to shut down and then reopen, causing disruptions in the supply chains in the process. These disruptions may push the prices of certain products upward. Yet we are seeing an increase in the overall level of prices, in all economies, which should not have happened if there is monetary stability. So, while broken chains may explain in part the price hikes, we must look elsewhere for the true reasons of overall inflation, namely damaging monetary policies and damaging fiscal signals and programs.
——————————————————————————————————
The human side of productivity: Uncovering the role of skills and diversity for firm productivity – Chiara Criscuolo, Peter Gal, Timo Leidecker, Giuseppe Nicoletti
23 december
Rising dispersion in productivity across firms has focused attention on the drivers of superior performances of a minority of firms at the ‘productivity frontier’ and disappointing performances of the remaining ‘productivity laggards’. This column brings together data from ten countries to explore how differences in productivity outcomes of frontier and laggard firms depend on the composition, diversity, and competencies of their managers and their workers. Overall, this ‘human side’ explains about a third of the observed differences in productivity across firms, more than is accounted for by differences in capital intensity.
——————————————————————————————————
A Strategy to Promote Sound Money: Decentralize the State – Matt Ray
25 december
For more than a century, an inflationary monetary policy has plagued the United States. Most recently, price inflation has become the most obvious consequence of the Federal Reserve’s actions to the public. Other effects, while less visible, have been no less pernicious. Indeed, inflation is particularly insidious because rising prices can mask a transfer of wealth. Additionally, the Fed’s policies of artificially low interest rates and quantitative easing have discouraged savings and fueled boom-bust cycles.
As these monetary issues have continued to intensify, the need for solutions has become more urgent. The purpose of this article is to demonstrate the ways in which paper money and centralization reinforce each other, and to explore how political decentralization can promote sound money.
One of the more obvious ways fiat money enables centralization is by removing the limitations on the power of the government to inflate the currency that exist under a commodity money standard. Under a system of unbacked fiat money, there are fewer limitations the ability of the regime to increase government spending by inflating the money supply.
——————————————————————————————————

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.

Eerdere afleveringen van dit wekelijkse overzicht vindt u hier.Economische aanraders