Economische aanraders 29-11-2020
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.
Why the IMF Is Wrong about Liquidity Traps – Frank Shostak
In the Financial Times from November 2, 2020, the International Monetary Fund chief economist Gita Gopinath suggested that world economies at present are likely to be in a global liquidity trap. Gopinath has reached this conclusion because the yearly growth rate of the price indexes has been trending down despite very low interest rates policies. According to the IMF chief economist, central banks have lowered interest rates to below 1 percent and in some countries interest rates are at present negative. In the framework of a liquidity trap, it is held that the ability of central banks to stage an effective defense against various economic shocks weakens significantly. So how can one resolve the problem of the central banks’ inability to produce the necessary defense of the economy?
The “Great Reset” And The Risk Of Greater Interventionism – Daniel Lacalle
Global debt is expected to soar to a record $277 trillion by the end of the year, according to the Institute of International Finance. Developed markets’ total debt -government, corporate and households- jumped to 432% of GDP in the third quarter. Emerging market debt-to-GDP hit nearly 250% in the third quarter, with China reaching 335%, and for the year the ratio is expected to reach about 365% of global GDP. Most of this massive increase of $15 trillion in one year comes from government and corporates’ response to the pandemic. However, we must remember that the total debt figure already reached record-highs in 2019 before any pandemic and in a period of growth.
The main problem is that most of this debt is unproductive debt. Governments are using the unprecedented fiscal space to perpetuate bloated current spending, which generates no real economic return, so the likely outcome will be that debt will continue to rise after the pandemic crisis is ended and that the level of growth and productivity achieved will not be enough to reduce the financial burden on public accounts.
OCC fights de-banking. Fed moves to climate – John H. Cochrane
Part 1: The OCC
The OCC issued a refreshing rule proposal, covered in a nice WSJ oped by Brian Brooks and Charles Calomiris. It is as interesting as a compendium of what’s going on as it is for a rule to put an end to it, especially since enthusiasm for the rule is likely to change about Jan 20.
The 2021 Liquidity Supernova: Step Aside Fed – US Treasury Will Unleash $1.3 Trillion In Liquidity – Tyler Durden
One of the most poignant (and painful to some) lessons of the past decade – especially to contrarian, bearish investors such as Odey and Horseman – is that the Fed can keep print money far longer than any short can remain solvent. And while it was considered in poor taste until earlier this year to admit that the market levitation is entirely due to the Fed’s manipulation of markets- a task best left to fringe, tinfoil wearing blogs – all pretense disappeared after Jerome Powell nationalized the bond market in March, and just last week Morgan Stanley’s chief rates strategist, Matthew Hornbach, admitted that central bank liquidity is the most critical component of rising macro markets: “It both greases the wheels of transactional finance and changes the opportunity set available to investors.”
Vast Euro-Derivatives Market, Centered in London, Is Set to Fragment as End of Brexit Transition & Uncertainties Loom – Nick Corbishley
It shouldn’t “create risks to the stability of the financial system,” which is soothing to know.
About 43% of the $9.4 trillion in daily global derivatives trades tracked by the Bank for International Settlements are executed in the U.K. A large chunk of them are euro-denominated, but some of those trades will soon have to be executed elsewhere, according to the Paris-based European Securities and Markets Authority (ESMA), which announced on Wednesday that once the Brexit transition period expires, on Dec. 31, trading in euro-denominated derivatives must remain within the EU’s jurisdiction or in a country with “equivalent” standards to the bloc.
Why Marx Never Figured Out How to Distribute Goods in a Socialist Society – Antony Sammeroff
Contra Marx, Mises understood that human desires and needs are not determined merely by biology.
Karl Marx held that human interests are “uniquely and entirely determined by the biological nature of the human body.”1 He thought that people were exclusively interested in gaining as many tangible goods as they could. Therefore, a person’s wants would not depend on his ideas but on his physiological condition. More is better.
The question Ludwig von Mises posed, on the other hand, is: More of what?
Economics is concerned with how this is decided. It is one thing to say that under socialism men enjoy their toil because they will find self-actualization in producing goods for each other. It is another thing entirely to demonstrate who, under socialism, will choose what is made for whom, how, where, with what, and by whom.
Sticky expectations: A unified explanation for bond and currency puzzles – Eleonora Granziera, Markus Sihvonen
High short-term interest rates predict domestic currency appreciation and low excess returns for long-term bonds. These facts are at odds with two textbook conditions describing the relationship between different maturity interest rates and exchange rates: uncovered interest parity (UIP) and the expectations hypothesis. This column explains that both conditions can be reconciled with the data if agents are assumed to have sticky rather than perfectly rational expectations concerning short rates. It also demonstrates how this empirically motivated change in model assumptions has broad implications for interpreting the effects of monetary policy on exchange rates and yield curves.
***Debunking Seven Common Criticisms of Austrian Economics – Per Bylund
Let’s clear up some misconceptions about Austrian economics.
If people want to dismiss this school of thought, which many seem inclined to do for political (not theoretical) reasons, at least they should do so based on facts and knowledge, not on falsehoods. Here are corrections:
“Austrian economics is not empirical.”
Empirical studies (“history”) are important in Austrian economics and have larger scope than in mainstream economics. Mises worked with applied research in the Vienna Chamber of Commerce and founded the Austrian Institute for Business Cycle Research, for which he appointed Hayek as the first director. This is where Hayek did much of the business cycle research that later won him the Nobel Prize. What critics fail to understand is Austrians’ narrower definition of theory, which is not a collection of hypotheses but true, general statements. Austrian economic *theory* cannot be developed using incomplete and imprecise measurements of observations. But this does not mean Austrians cannot or will not do empirical research.
***Taxpayers Face $435 Billion in Student-Loan Losses, Already Baked in: Leaked Education-Department Study – Wolf Richter
Most of the losses come from established income-based repayment programs that include debt forgiveness at the end. No one has ever put a number to it until now.
In 2009, the US government entered the business of reckless, no-matter-what lending to students, even to older students with subprime credit ratings and to students at iffy for-profit colleges with dubious degree programs. And then tuition soared, and student housing went upscale and became a global asset class with its own commercial mortgage-backed securities (CMBS) that are now experiencing record delinquency rates. And Apple and textbook publishers and everyone began feeding at the big trough, with students just being the conduit for this money. Student-loan balances on the government’s financial statement skyrocketed from $147 billion in 2009 to $1.37 trillion at the beginning of 2020, despite the 11% decline in student enrollment since 2011.
Why Sound Money Is “Green” and Central Banks Aren’t – Brendan BrownPhilippe Simonnot
Although many central bankers have claimed the central banks are instrumental in ushering in a more green economy, a closer look suggests central banks are anything but “green.” In fact, a sound money economy might be a much more effective tool in improving the physical environment.
Ecology is where statism and socialism now have their revenge on capitalism, which stands accused of responsibility for all maladies, especially the running down of our planet’s resources and degradation of climatic conditions. Let us discuss the multiple flaws in this indictment:
Regulating Fintech in Europe: Lessons from the collapse of Wirecard – Giorgio Barba Navaretti, Giacomo Calzolari, Alberto Pozzolo
The default of Wirecard highlights several problems in the regulation and supervision of Fintech companies, with regulatory holes in investor protection, customer protection, and financial stability. This column argues that since Fintech companies can be very complex, their oversight requires understanding their business model and combining regulation and supervision based on both entities and activities. The global reach of Fintechs also calls for better coordination at the European level and beyond, but the authors do not see the need for new regulatory body to oversee Fintechs in Europe.
Inequality And The Gold Standard – avid Howden
Imagine that you earn $40,000 a year and your boss doubles you at $80,000 a year. Business was good to you both in 2013, and you received a 25% raise for your efforts. Not bad, and your boss gets to share in this good fortune too with an extra $25,000 (about 30%). You’re going to make $50,000 in 2014 and your boss will pull in $105,000.
Are you happy with this deal? Probably. But wait, income inequality just increased! Your boss originally outpaced you by 100%, but now his salary is 110% higher than yours.
To read the brouhaha going around right now, this situation is cause for alarm. Income inequality has increased and despite the fact that everyone is doing better than they once were, one group is doing relatively better.
***Moral Decay Leads to Collapse – Charles ugh Smith
Our national claim of moral superiority is no longer plausible.
A very strong case can be made that America is now a moral cesspool. Consider just three cases: Jeffrey Epstein, the CEO of Pfizer and JPMorgan Chase.
Sadly, Epstein is the epitome of America’s elite: getting away with abusing children for years, if not decades; when finally caught a few years ago, escaping with a legal wrist-slap; acquiring a fortune of $200 million without creating any jobs, innovations or value; buying his way into the good graces of Harvard, MIT and a seemingly endless parade of celebrities, politicians, scientists, etc.
And very par for the course in America’s elite: Epstein’s crimes were known by America’s intelligence and law enforcement agencies, but rather than indict him, they made him an “intelligence asset” that had to protected from exposure to the consequences of the rule of law.
***This Spike of New Businesses is a Doozie, on Several Levels – Wolf Richter
People are massively striking out on their own. But new businesses with planned wages have been getting scarcer since 2007.
Early on in the Pandemic, as 30 million people lost their jobs and gigs, the number of new businesses exploded higher, perhaps fed by stimulus money and the extra $600-a-week in unemployment benefits that allowed people to strike out and go after their dreams, or fed by desperation, or fed by new opportunities that arose and that some people saw and grabbed.
Starting in late May, according to the Census Bureau, weekly business applications began to surge, and in the week ended July 18, at 123,000, were up 91% from the same week last year. They have now tapered off but continue to run at a hot pace.
On the development of fiscal capacity: New insights from African data – Thilo Albers, Morten Jerven, Marvin Suesse
Why do large differences in tax revenues between states exist and persist? This column introduces a comprehensive new dataset of tax and revenue collection for all African polities from 1900 to 2015 to answer this central question. The results confirm the importance of democratic institutions and political stability, while de-emphasising the role of resource revenues. Overall, states in Africa have been able to build institutions for the collection of ‘hard’ taxes when the preconditions were favourable, especially when access to external finance was limited. These insights add important nuance to established theories of state-building in developing countries.
2021 Would Be a Great Time to Audit the Fed – Nick Hankoff
Gone are the days of the Federal Reserve hiding in the shadows. Now it’s a woke central bank fighting for climate and racial justice. Progressives must not fall for this but instead team up with the populist right to audit the Fed and demand transparency.
Let the healing begin! If it is going to be President Joe Biden a couple months from now, then there will be all the more incentive for antiestablishment Democrats to join forces with populist Republicans. What better issue than auditing the Federal Reserve System?
***Machines in the fight against corruption – Guido de Blasio, Alessio D’Ignazio, Marco Letta
The use of artificial intelligence in preventing crime is gaining increasing interest in research and policymaking circles. This column discusses how machine learning can be leveraged to predict local corruption in Italy. It highlights how such algorithmic predictions could be employed in the service of anti-corruption efforts, while preserving transparency and accountability of the decisions taken by the policymaker.
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