Economische aanraders 28-02-2021
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.
No, Drops in Money Velocity Don’t Offset Money Printing – Frank Shostak
At the end of January, the yearly growth rate of our measure of US money supply (AMS) closed at 76.7 percent, against 4.8 percent in January 2020. It is tempting to suggest that this massive increase in the growth rate of money supply is likely to result in massive price inflation in the months ahead.
Based on the sharp decline in the velocity of money from 6.7 in June 2008 to 2.3 by December 2020, however, it can be argued that price inflation is not likely to accelerate in the months ahead. In this way of thinking, a decline in velocity offsets the effect of massive increases in money supply on price inflation. Here is why.
Over any interval of time, such as a year, a given amount of money can be used repeatedly in the purchase of goods and services. The money one person spends on goods and services is used by the recipient of that money to purchase goods and services from some other individual. For example, in a year a particular ten-dollar bill might be used as follows: a baker, John, pays ten dollars to a tomato farmer, George. The tomato farmer uses the ten-dollar bill to buy potatoes from Bob, who uses it to buy sugar from Tom. The ten dollars here was used in three transactions during the year; its velocity is therefore three.
What happens if bitcoin succeeds? – Jon Danielsson
As the price of bitcoin continues to rise, this column argues that most of us would not want to live in a society where bitcoin succeeds. Fortunately, the internal contradictions and perverse consequences of cryptocurrencies’ success mean that they are destined for failure. Until then, it might make sense for speculators to ride the cryptocurrency bubble, so long as they get out in time.
The Growing Pains of Brexit, 50 Days In – Nick Corbishley
The crucial services exports, manufacturing exports and imports, the arts & entertainment industry, fishing industry… it’s a mess.
This article — the first installment of a two-part series — explores some of the dark sides of Brexit that have emerged so far. It is not intended to reopen any debate about the 2016 referendum or the negotiations over 4 years between the EU and the U.K. which culminated in the Withdrawal Act and subsequently the Trade Deal. Its focus is on the current short-term effects, though they may become medium-, if not long-term ones. Time will tell. The second installment in a few days will look at some of the isolated bright spots that are beginning to shine through.
The Dangers Lurking behind a Digital Euro – Thorsten Polleit
Neosocialist China does it, Sweden does it, and many other states want to do it, too: to issue digitized central bank money for everyone. The European Central Bank (ECB) is also working on such a scheme. It wants to launch “digital euro central bank money” as soon as possible. Many economists praise the project as an “innovation,” as an important and indispensable step in an increasingly digitized world.
The ECB is also keen to make its intentions known, declaring that a digital euro will be accessible for everyone, robust, secure, efficient, and compliant with applicable law. However, it should be clear that the path to becoming a surveillance state regime will accelerate considerably if and when a digital euro is issued. But let’s not get ahead of ourselves.
Friedman vs Phillips: A historic divide – Manoj Pradhan, Charles Goodhart
Milton Friedman and Bill Phillips most likely assumed that their separate methods for predicting inflation would lead to much the same outcomes. Recently, however, monetary aggregates and the Phillips curve have provided extremely disparate signals. This column discusses recent economic developments leading to these disparate signals, concluding that inflation will most likely end up somewhere between the predictions of the two models – which is almost certainly higher than what central banks and the IMF are expecting.
Bitcoin, Gold, and the Rush to National Digital Currencies – Brendan Brown
Bitcoin as a money is just very unremarkable. Yet this digital coin is well on its way to becoming one of financial history’s great epic stories. Its promotors just hit lucky in finding themselves in the midst of a monetary inflation whose virulence intensified during a great pandemic. Double luck: the greatest speculative narrative of the accompanying asset inflation has been about the miracles of digitalization, a fantastic landscape for nurturing excitement about this new money.
Global Green Energy Zombie Abengoa, Caught Cooking its Books in 2015 & Bailed Out Twice, Finally Runs Out of Bailouts, Files for Bankruptcy, 2nd Largest in Spanish History – Nick Corbishley
Biggest beneficiaries of the now scuttled rescue plan would have been private equity firm KKR and Banco Santander.
Abengoa, the global renewables energy giant that was caught cooking its books in 2015, collapsed a year later but narrowly avoided insolvency by restructuring €9 billion of its debt and receiving a government bailout, only to hit the rocks again in 2018 and restructure even more debt and receive yet another bailout, has just hit the rocks again and filed for insolvency after the regional government of Andalusia withdrew an offer of a measly €20 million in funding as part of Abengoa’s latest rescue deal. Abengoa’s lenders finally lost patience and turned off the money taps.
ECB monetary policy communications: A spectrum of financial market responses – Valentin Jouvanceau, Ieva Mikaliunaite
The Euro Area Monetary Policy Event-Study Database makes available intraday asset price changes around ECB policy announcements for a wide range of assets, but conceals unrecognised effects of the ECB’s actions and communications. This column presents three new types of monetary surprises: ‘duration’, ‘sovereign spread’, and ‘save the euro’. These reflect the frequent and significant reactions of long-term sovereign bond yields to ECB monetary policies.
Anatomy of a Bubble and Crash – Charles Hugh Smith
Needless to say, few are expecting bubble symmetry to manifest now, because, well, of course, “this time it’s different.” Indeed. It’s always different and yet always the same, too.
Let’s indulge in some basic logic:
1. All speculative bubbles pop, regardless of source, time or place. (100% of all historical evidence supports this.)
2. The current “Everything Bubble” is a speculative bubble.
3. Therefore the current speculative bubble will pop.
Now that we got that out of the way, the question becomes: how will the crash play out? There is no way to forecast precisely when or how the current speculative bubble will crash, but history offers a few potential templates.
The dot-com bubble offers a classic example of bubble symmetry and scale invariance. (See chart below.) Note how the bubble arose in two legs of X duration and it crashed in two symmetrical legs of X duration. In both legs, the crash returned to the same levels from which the bubble took off.
More Shifts in the Year of the Plague: Driving Plunged even as Mass Transit Ridership Collapsed – Wolf Richter
“L-shaped recovery” for mass transit. Per person, vehicle miles were already in long-term decline since 2003. Than came 2020.
Total motor vehicle travel on all roads and streets in the US – by private and commercial vehicles, including delivery vehicles, over-the-road trucks and rideshare vehicles – dropped by 13.2%, or by 430 billion vehicle miles driven, in the year 2020, by far the largest drop in the data going back to the 1990s.
They Can Always Print More Money But We Can’t Print More Time – Charles Hugh Smith
Is that really what you want to spend your time doing, paying higher taxes?
“No matter how much money I make, they will always print more. I can’t print anymore time.”
The source of this quote is correspondent T.D., who shared the story of an acquaintance of his who was offered a high-paying and very demanding corporate position that would have left him nominally wealthier in terms of money but much poorer in terms of time and energy remaining after trading away the bulk of his time and energy for the higher pay.
The acquaintance turned the position down and cut the number of hours he was working, with this explanation: “No matter how much money I make, they will always print more. I can’t print anymore time.”
How much capital should banks hold? – Caterina Mendicino, Kalin Nikolov, Juan Rubio-Ramirez, Javier Suarez, Dominik Supera
Well-capitalised banks make the financial system more resilient to episodes such as the COVID-19 crisis. This column assesses how much capital would be optimal for banks to hold, taking into consideration the risk of banking crises driven by borrower defaults. It finds that capital requirements of around 15% provide the optimal trade-off between lowering the frequency of banking crises caused by borrower defaults and maintaining the availability of credit in normal times. While the exact figure depends on a number of assumptions, it is higher than both the Basel III minimum and the optimum implied by macroeconomic frameworks that underestimate or neglect the impact of borrower default on bank solvency.
Want More Entrepreneurship? Embrace Long-Term Legal Stability. – Michele Corgatelli
Continuous change in the regulatory framework in which market players do business is a feature of modernity: while the perimeter of the state’s intrusiveness gets larger, rules expand and change constantly. On the other hand, every investment calls for a certain amount of calculation,1 given that business as a human activity has uncertain and risky outcomes in itself. To know the rules applicable in a precise moment is not a sufficient condition for “rational” planning if these rules will later change; in other words, a very reasonable action today could turn out to be quite unreasonable according to the rules applicable tomorrow. A change in the tax code, for example, could retroactively make a past investment less profitable today. How many tax reforms has the US undergone in the last decades?
How Global Health And Wealth Has Changed Over Two Centuries – Tyler Durden
At the dawn of the 19th century, global life expectancy was only 28.5 years.
Outbreaks, war, and famine would still kill millions of people at regular intervals. These issues are still stubbornly present in 21st century society, but, as Visual Capitalist’s Nick Routley notes, broadly speaking, the situation around the world has vastly improved. Today, most of humanity lives in countries where the life expectancy is above the typical retirement age of 65.
At the same time, while inequality remains a hot button topic within countries, income disparity between countries is slowing beginning to narrow.
***The Danger Of The Administrative State – Ethan Yang
Lockdowns should have shown every American just how tyrannical and unreasonable our leaders can be. There are elected leaders like Governor Cuomo who have acted as outright tyrants, alienating everyone, even those in his own party. Then there are the unelected bureaucrats who wave away our liberties with the stroke of a pen from the secrecy of their massive offices with technocratic efficiency. This is all of course a sudden and dramatic curtailing of our freedoms. I would not be surprised that with this much public attention, some sort of effort will be made to roll back much of what has been done. Although lockdowns are certainly an existential threat to our long-term freedoms and system of liberal democracy, there has been another specter out there that many experts have been sounding the alarm on for decades. The growth of the administrative state.
The pandemic and Greece’s debt: The day after – George Alogoskoufis
Greece experienced a deep recession in 2020, and pandemic relief measures have led to further increases in its exorbitantly high public debt. This column outlines three potential methods for dealing with increasing debt after the crisis: (1) increases in taxation/reductions of government spending, (2) debt restructuring and (partial) debt write-offs, or (3) a policy of ‘gradual adjustment’ in which economic growth helps the debt burden shrink relative to GDP over time. The precise policy mix will involve significant coordination among euro area countries, but Greece must also implement domestic reforms to facilitate a dynamic and sustainable recovery.
***Why “Stakeholder Capitalism” Is a Disaster for Entrepreneurs – Thomas Spain
During the 1990s there was a legal and philosophical idea, championed by Milton Friedman among others, that a corporation exists to serve the interests of the shareholders, being that they are the rightful owners of the corporation. Progressive thought leaders responded with the countertheory of stakeholder capitalism. Under stakeholder theory the shareholders have a stake in the success of the firm, but the firm also has a competing obligation to other entities deemed “stakeholders.” Stakeholders are employees, customers, suppliers, and the community. While this theory is presented as a commonsense truism, it has one specific foundational flaw: it dilutes and undermines the principle of private property.
***Cities without skylines: Worldwide building-height gaps, their determinants, and their implications – Rémi Jedwab, Jason M. Barr, Jan K. Brueckner
Housing prices in many countries are growing faster than incomes. Much of this affordability problem can be explained by regulatory barriers to new construction. This column calculates countries’ ‘building-height gaps’ – the difference between the total height of a country’s stock of tall buildings and what the total height would have been if building height regulations were relatively less stringent, based on parameters from a benchmark set of countries. These gaps are larger for richer countries and for residential buildings rather than for commercial buildings, and they correlate strongly with housing prices, sprawl, congestion, and pollution.
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