Economische aanraders 27-10-2019
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.
Global Monetary Failure is Becoming Inevitable – Alasdair Macleod
Listening to recent commentaries about the repo failures in New York leads one to suppose there is insufficient money in the system. This is not the real issue, as the chart below of the fiat money quantity for the dollar clearly shows.
The fiat money quantity is the amount of fiat money (in this case US dollars) both in circulation and held in reserve on the central bank’s balance sheet. Before the Lehman crisis, it grew at a fairly constant compound growth rate of 5.86%. Since the Lehman crisis, it has grown at an average of 9.45%, even after the slowdown in its rate of growth that started in January 2017. FMQ is still $5 trillion above where it would have been today if the massive monetary expansion in the wake of the Lehman crisis had not happened. If there is a shortage of money, it is because the process of debt creation to fund current expenditure is spiralling out of control.
The Phillips curve: Dead or alive – Peter Hooper, Frederic S. Mishkin, Amir Sufi
The apparent flattening of the Phillips curve has led some to claim that it is dead. The column uses data from US states and metropolitan areas to suggest a steeper slope, with non-linearities in tight labour markets. We have been here before – in the 1960s, similar low and stable inflation expectations led to the great inflation of the 1970s.
Europe’s Spending Binge Is Slowing Its Economy – Daniel Lacalle
The idea that governments can’t lower taxes because there is a deficit, but are free to raise all expenses even if there is a deficit can be found in many political manifestos these days. Central planners always see the economic challenges as a problem of demand, and as such cringe at the idea of prudent investment and saving. When GDP growth, gross capital formation, and consumption are lower than what Keynesians would want, they always blame the alleged problem on “too much saving.” This is a ridiculous premise based on the perception that economic cycles and excess capacity do not matter and if companies and citizens don’t spend as much as the government wants, then the public sector should spend a lot more.
That is why tax cuts are hated and government spending plans are hailed. Because tax cuts empower citizens while government spending empowers politicians. An extractive view of the economy in which politicians and some economists always consider that you earn too much and they spend too little.
***“It’s Different This Time” Takes Root in the Junk-Bond Market Amid Parallels to Post-Lehman 2008 – Wolf Richter
And so far, so good.
The Fed and other central banks have done an endlessly mind-boggling job in killing off any notion of risk – and therefore the pricing of risk – in the bond market, which just veers from curious to curiouser. All kinds of entities, metrics, bond-market watchers, and credit fretters have been warning about the pileup of corporate debt and record corporate leverage.
This is especially the case at the high-yield or “junk” end of the spectrum where cash flows tend to be negative, and where this leverage poses real credit risks. But no problem.
Every time another warning goes out, sure enough the bond gurus at Goldman Sachs and other investment banks that make a killing in fees off underwriting these bonds, and that have to sell these bonds to their clients, come out and soothe our jangled nerves. Don’t worry, be happy, they say; ignore the risks, this is a buying opportunity because this time it’s different.
More Government Spending Won’t Make the Economy Grow – Frank Shostak
A key factor that constrains people’s ability to generate goods and services is the scarcity of funding. Contrary to popular thinking, funding for consumption and production is not about money as such, but about real savings.
Note that various tools and machinery or infrastructure that people have created is for one purpose. That purpose is to be able to produce final consumer goods that are required to maintain and promote life and well-being.
For a given consumption of final consumer goods, the greater the production of these goods, the larger the pool of real funding or savings is going to be. The quantity and the quality of various tools and machinery (i.e., the available infrastructure) place a limit on the quantity and the quality of the production of consumer goods.
Objectives and boundaries of monetary policy: A Governor to renew the Bank of England’s monetary vows – Jagjit Chadha
The Federal Reserve is reviewing its monetary policy strategy, tools, and communication processes, but there has been surprisingly little formal debate about these key aspects of monetary policymaking in the UK and the euro area. This column argues that the impending appointment of the next Governor of the Bank of England provides an opportunity for an open and deep debate about the fundamental objectives of the central bank and the limits of independence. It also warns that the genuine progress that has been made in the science of monetary policy may be threatened by a new era of economic populism.
Economics and cognitive dissonance – John H. Cochrane
What is the value of economics? “Have you economists ever proved anything that isn’t obvious?” is a common complaint.
Tyler Cowen has an insightful post on Marginal Revolution, that provides a lovely insight into the power of economic thinking.
Often, multiple policy questions come down to a single issue. We may not know the answers to any of the questions, but we can at least say that the single issue drives the answer to all of them. So once you decide one issue goes one way, you can’t (rationally) believe another issue goes another way, no matter how politically convenient that might be.
The issue here is the “elasticity of labor demand.” If wages go down 10%, how many more workers will employers hire? If wages go up 10%, how many fewer will they hire? Already, note, that’s one number, and it makes little sense to believe a higher number in one direction than another except for some likely quite transitory adjustment costs.
Despite Ultra-Low Mortgage Rates, New House Prices Drop to Multi-Year Low – Wolf Richter
Last time prices fell like this was during the Financial Crisis. But now, there is no crisis.
The median price of new single-family houses in September fell 8.8% from a year ago to $299,400 – down 12.8% from the peak in November and December 2017 and back where the median price had first been in November 2014, according to the Commerce Department this morning:
***Middle management, geographic frictions, and firm establishments – Anna Gumpert, Henrike Steimer, Manfred Antoni
Distance and other geographic frictions between firms’ headquarters and their establishments have a negative effect on performance. This column shows that hiring middle managers helps firms mitigate the impact of geographic frictions, by improving the efficiency of management resources. Factors affecting the efficiency of a local establishment have knock-on effects for the whole firm, regardless of distance.
The Unraveling Quickens – Charles Hugh Smith
Even if we don’t measure the erosion of intangible capital, the social and political consequences of this impoverishment are manifesting in all sorts of ways.
The central thesis of my new book Will You Be Richer or Poorer? is the financial “wealth” we’ve supposedly gained (or at least a few of us have gained) in the past 20 years has masked the unraveling of our intangible capital: the resilience of our economy, our social capital, i.e. our ability to find common ground and solve real-world problems, our sense that the playing field, while not entirely level, is not two-tiered, and our sense of economic security–have all been shredded.
The unraveling of everything that actually matters is quickening. While every “news” outlet cheerleads the stock market (“The Dow soared today as investor optimism rose… blah blah blah”), our “leadership” and our media don’t even attempt to measure what’s unraveling, much less address the underlying causes.
***Protecting the family honour: Corporate ownership and antitrust violations – Mario Daniele Amore, Riccardo Marzano
Family firms account for a significant fraction of businesses worldwide. This column analyses how family ownership shapes the likelihood of being involved in antitrust indictments. Family-owned firms are less likely than non-family firms to commit antitrust violations, but they also tend to curb equity financing and invest less aggressively after antitrust investigations. This suggests that family control wards off reputational damages but at the same time it weakens their ability to keep up with fiercer competition following the dismantlement of an anticompetitive practice.
Oilfield Services Face Crisis as Shale Slowdown Worsens – Nick Cunningham
Shale oil producers are under fire from investors, while most analysts see a supply glut in 2020.
The first and third-largest oilfield service companies in the world saw their earnings hit in the third quarter due to the slowdown in U.S. shale drilling.
Schlumberger took a $12.7 billion impairment charge related to its North American business, a rather dramatic write-down. That led to an $11.4 billion loss for the quarter, the largest in the company’s history. “That’s a sizable writedown from pressure pumping business. That just tells you the state of the North American onshore market being pretty poor,” said Anish Kapadia, founder of oil and gas consultancy firm AKap Energy.
What Swiss Watch Exports Tell Us About The State Of The Global Economy – Nick Colas
Today we have an odd but telling data set: Swiss watch exports. By value most of these are high end, selling for +$3,000 apiece. As such they are good indicators of global luxury demand. Year-to-date data is a mirror of other economic indicators: the US is doing fine, Europe and China/Hong Kong less so. Longer term, the data also shows how luxury markets really work. Swiss watch companies have been under-producing relative to demand for years, seeking to maintain exclusivity in a world where so many people can afford their wares.
In the 21st century no one needs a watch. We have smartphones, computers, tablets, and smart watches. All show the correct time down to the second.
That goes double for fine Swiss mechanical watches. No Rolex or Patek Philippe can keep time as well as a $200 Casio that synchronizes daily to an atomic clock radio signal. And you can repeatedly drop the Casio on a hard tile floor without incident. Don’t try that with anything that carries the Cotes de Geneve finish on its movement.
100% Banking and Its Advocates: A Brief History – Edward W. Fuller
The 100% reserve plan is often considered a radical proposal for monetary reform. This article discusses the history of 100% banking and its advocates. The article shows that many of the most important figures in the history of money and banking have advocated 100% reserves. Contrary to the modern consensus in economics, the 100% plan is conservative, not radical.
The Early History of Banking
The deposit business is older than recorded history. Deposit banking first emerged in the ancient Mesopotamian temples. Initially, the temples took deposits in grain. But eventually, the temples stored other crops, livestock, farming equipment, and the precious metals. Accountants in ancient Mesopotamia invented writing around 3300 BC to record the ownership of property, including property held on deposit.
Pondering The Collapse Of The Entire Shadow Banking System – Mike Shedlock
What’s behind the ever-increasing need for emergency repos? A couple of correspondents have an eye on shadow banking.
The shadow banking system consists of lenders, brokers, and other credit intermediaries who fall outside the realm of traditional regulated banking.
It is generally unregulated and not subject to the same kinds of risk, liquidity, and capital restrictions as traditional banks are.
The shadow banking system played a major role in the expansion of housing credit in the run up to the 2008 financial crisis, but has grown in size and largely escaped government oversight since then.
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