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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Inflation, Money And Supply Bottlenecks – Daniel Lacalle
23 mei
“The constant refinancing of debt from companies of doubtful viability also leads to the perpetuation of overcapacity because a key process for economic progress, such as creative destruction, is eliminated or limited”.
One of the arguments most used by central banks regarding the increase in inflation is that it is because of bottlenecks and that the recovery in demand has created tensions in the supply chain. However, the evidence shows us that most commodities have risen in tandem in an environment of a wide level of spare capacity and even overcapacity.
If we analyse the utilization ratio of industrial and manufacturing productive capacity, we see that countries such as Russia (61%) or India (66%) are at a clear level of structural overcapacity and a utilization of productive capacity that remains still several points lower than that of February 2020. In China it is 77%, still far from the 78% pre-pandemic level. In fact, if we analyse the main G20 countries and the largest industrial and commodity suppliers in the world, we see that none of them have levels of utilization of productive capacity higher than 85%. There is ample available capacity all over the world.
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***Why Economic Models Can’t Provide a Realistic Picture of Human Behavior – Frank Shostak
26 mei
While in the natural sciences a laboratory experiment can isolate various elements and their movements can be followed through, there is no equivalent in the economic discipline. The introduction of econometrics and model building is an attempt to produce a laboratory where controlled experiments can be conducted.
The idea of having such a laboratory is very appealing to economists and politicians, since once the model is built and endorsed as a good replica of the economy, politicians can evaluate the outcomes of various policies.
This, it is argued, will enhance the efficiency of government policies and thus lead to a better and more prosperous economy. It is also suggested that the model can serve as a referee in validating various economic ideas.
Apart from assessing the impact of various policies, the other purpose of a model is to provide an indication regarding the future.
By means of mathematical and statistical methods, a model builder establishes relationships between various economic variables.
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Fed to Treasury Dealers and Congress: We Can’t Count On You, We’re Taking Charge – Charles Hugh Smith
24 mei
The Fed sees itself as trapped by the incompetence and greed of the other players and by its own policy extremes that were little more than expedient “saves” of a system that is unraveling due to its fragility and brittleness. .
There are two standard-issue narratives about the Federal Reserve’s agenda: the Fed’s official narrative is that the Fed’s mandate is to keep inflation under control while promoting full employment. The unofficial mandate that’s obvious to all is to prop up assets, especially the stock market, which has become the Fed’s preferred signifier of prosperity and the rightness/goodness of Fed policies.
The other narrative results from “following the money”: the Fed is owned by private-sector banks, and so behind the curtain of happy-talk (full employment, blah-blah-blah), the Fed’s only real agenda is to further enrich banks and too big to fail/jail financiers–something it has managed to do with remarkable success.
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The reliability of public debt forecasts – Julia Estefania Flores, Davide Furceri, Siddharth Kothari, Jonathan D. Ostry
28 mei
Public debt ratios have increased significantly in 2020 from already elevated levels. Current projections envisage a quick stabilisation and subsequent decline in debt ratios. This column assesses the likelihood of this projection by looking at past evidence on forecast accuracy, based on a new comprehensive dataset of medium-term debt forecasts. It finds that forecasts have systematically understated the actual evolution of debt. If the past is a guide to the future, rather than declining, debt ratios could be some 7% of GDP higher five years from now than they are today in emerging and developing countries.
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China Warns Global Financial Bubble Could Burst – Tyler Durden
29 mei
Almost three months after markets stumbled when after China’s top banking regulator said he’s “very worried” about risks emerging from bubbles in global financial markets (and China’s property sector) sparking concerns about further tightening in the world’s second-biggest economy and slamming risk assets, China has done it again and on Saturday Liang Tao, vice chairman of China Banking and Insurance Regulatory Commission, said at the International Finance Forum in Beijing that recent interest rate hikes by emerging economies could lead to a bursting of global financial asset bubbles which have been made even bigger by unprecedented pandemic easing measures by developed countries (i.e., Biden’s trillions). And just in case it wasn’t clear whose fault this is, Tao added that developed countries are sticking with ultra-low rates even as emerging economies raised their borrowing costs, “potentially resulting in the re-pricing of global assets.”
In short, China is already pre-emptively pointing the finger at the US and western central banks as the parties responsible not only for bursting the biggest asset bubble in history, but for creating it in the first place.
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The USD is Weak, and What That Could Mean for the Rest of 2021 – Bryce Coward
28 mei
The US dollar is on the verge of breaking down to the lowest level since 2014. This is not all that surprising. After all, the US money supply continues to grow at a rapid pace relative to other countries and quantitative easing is likely to continue at full pace through the end of 2021. Meanwhile, other countries like the UK, Canada and others are already telegraphing rate hikes. Not only that, but the US budget deficit as a percent of GDP – which has a tight correlation with the level of the US dollar index – is set to explode through 2022 and beyond. The ballooning budget deficit suggests a level of 70 or 80 on the US dollar index over the coming years would not be out of the realm of possibilities. That would equate to a further decline of 11% to 22% from here. If the US dollar drops below the 90 “line in the sand” and starts on a path toward 80 in the back half of 2021, that would have fairly large ramifications for stocks. In this post we’ll briefly highlight one.
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Financial integration and structure in EMU during the corona crisis – Philipp Hartmann, Stefano Borgioli, Alina Kempf, Philippe Molitor, Francesco Paolo Mongelli
28 mei
The coronavirus health crisis also had a strong impact on financial systems. This column discusses its effects on euro area financial integration and financial structure. It illustrates how decisive monetary, fiscal and prudential policy responses first contained and then reversed the initial sharp fragmentation in asset prices across member countries. Overall cross-border asset holdings, however, still have to recover. The emerging alignment between common monetary and fiscal measures through the adoption of the three European safety nets and the Next Generation EU recovery programme seem to have been a game-changer in this regard. The resilience of financial re-integration to potential future shocks to the Economic and Monetary Union, however, should be monitored going forward. The different phases of the pandemic also went along with sizeable shifts between different corporate financing tools and different financial intermediaries.
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Where Will The Next Deflationary Shock Come From? – Louis-Vincent Gave
14 mei
The 1986 oil price crash, to an extent, fired the starting gun on 30 years of global deflation. As commodity prices collapsed, so did the Soviet Union, giving the West a deflationary peace dividend. By the early 1990s, Japan’s real estate and equity market busts threatened its banks. The rollout of the North American Free Trade Area and the 1995 “tequila crisis” helped make Mexico a competitive manufacturing hub. Soon after, the 1997-98 Asian crisis made producing abroad even cheaper, while China’s 2001 entry into the World Trade Organization greatly simplified outsourcing. In 2008, the US mortgage bust spurred China to build more infrastructure, unleashing 500mn more workers into the global economy. Europe’s 2011-13 crisis caused another deflationary hit, while the US’s shale energy boom stopped oil and gas prices rising.
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Fed Drains $485 Billion in Liquidity from Market via Reverse Repos, Undoing 4 Months of QE, Even as QE Continues, Total Assets Near $8 Trillion – Wolf Richter
27 mei
It’s a crazy situation the Fed backed into as tsunami of liquidity goes haywire, banking system strains under $4 trillion in reserves, and General Treasury Account gets drawn down.
This morning, the Fed sold a record $485 billion in Treasury securities via overnight “reverse repos” to 50 counterparties, beating the prior record set on December 31, 2015. These overnight reverse repos will mature and unwind tomorrow morning. Today, yesterday’s $450 billion in overnight reverse repos matured and unwound, and were more than replaced with this new batch of $485 billion in overnight reverse repos.
Reverse repos are liabilities on the Fed’s balance sheet. They’re the opposite of repos, which are assets. With these reverse repos, the Fed is selling Treasury securities to counterparties and is taking their cash, thereby massively draining liquidity from the market – the opposite effect of QE.
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China’s New Pandemic: A Bond Default Crisis – Andrew Moran
25 mei
China was one of the first major countries to recover from the coronavirus-induced economic collapse—but at what cost? The country has taken on enormous levels of public and private debt, eased monetary policy, and issued billions of dollars in new bonds. Yet, as the world’s second-largest economy attempts to return to its pre-crisis glory days, Beijing could potentially deal with a new pandemic that could have a sweeping effect on financial markets at home and abroad: A bond default crisis. Once again, when China sneezes, the world catches a cold.
The Great Default?
The Chinese bond market is at a pressure point with liquidity levels tightening. Although a massive selloff has yet to transpire in the world’s second-largest bond market, all the indicators point to its inevitability. Authorities are desperate to implement more financial discipline and transparency in the debt arena, but it might be a case of too little, too late.
Chinese corporations are defaulting on local bonds at the fastest rate on record. Year-to-date, businesses, from airlines to property developers, have failed to make payments on approximately $16 billion worth of inland bonds. This is the fourth consecutive year that defaults have surpassed the $15 billion mark, but they have typically crossed this threshold in September, not in April.
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The Fed’s Argument That It’s Not Directly Financing Government Debt Finally Fails – Knave Dave
28 mei
The following article by David Haggith was published on The Great Recession Blog:
The Fed’s argument that it is not monetizing the US debt fails now on its own terms. The Fed is buying treasuries for no purpose other than to directly finance the government’s escalating debt. Here’s the deal:
The drastic moves by the Feds and Fed throughout 2020 sidetracked us without any discussion straight into Modern Monetary Theory, which claims the government can create as much debt as it wants forever and the Fed can directly finance that debt forever with the only bound being the restraints of inflation.
The Fed’s absolutely massive reverse repo operations (used this month to extract half a trillion dollars in cash money out of the system!), done at the same time the Fed is creating money in the system, leave us with no question that the Fed is directly financing the government and monetizing its debt at whatever level the government demands (with almost no restraint on the government’s part for its role).
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State-by-state decisions on shutdowns minimise Covid’s economic impact – Mario Crucini, Oscar O’Flaherty
29 mei
Throughout much of 2020, the Trump administration deferred decision making regarding stay-at-home orders to the state and local level. The data-driven analysis in this column suggests that a national stay-at-home order at the onset of the pandemic, when the virus was spreading primarily in a small group of cities, may have imposed earlier and deeper economic costs on states with relatively low case numbers without any corresponding reduction in infection rates in such states. But as the virus spread more uniformly across the country in the last several months of 2020, a nationwide order seemed more appropriate. The findings demonstrate the value of public policy discretion at the state and local level when it comes to implementing stay-at-home orders with the simultaneous and competing goals of minimising community spread and business dislocation.
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US Set For Epic Labor Market Experiment: Red States Vs Blue States – Tyler Durden
29 mei
According to JPMorgan’s Daniel Silver, as of this moment some 23 – all republican – states have announced at least some form of early reduction in pandemic-related unemployment insurance benefits ahead of the September expiration at the federal level. These programs, he suggests, are likely limiting labor supply, generating a potential economic argument for ending these programs early.
A glance at the following chart – which shows the number of US job opening vs the number of Americans who remain on some form of Pandemic unemployment benefit, would suggest that Silver is right.
So, while the left are desperately gaslighting that this is a skills or geographic mismatch, the chart above makes it clear that paying people to stay home is not good for growth (or social stability).
Which is why 23 (Republican) states have listened to their business owners and started to cut those benefits. In fact, as Mike Shedlock notes, that means around 3.5 million Americans will come off Pandemic emergency benefits in the next few weeks.
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***What Igbo Culture Teaches Us about Capitalism – Lipton Matthews
24 mei
The Igbos are one of many ethnic groups within Africa. They consist of about 43 million people, 40 million of whom live within Nigeria. They are widely successful in Nigeria and are considered by many to be the “Jews of West Africa,” partly because they tend to be more economically successful than their neighbors. For example, according to some estimates, Igbo investments are a driving factor within Nigeria’s economy. By observing the culture of the Igbos, their phenomenal success in entrepreneurship appears unsurprising. The Igbos illuminate what economist Deirdre McCloskey refers to as “bourgeois dignity.” In Igbo culture, attaining wealth is perceived as a blessing to be cultivated and not an object of scorn. Unlike other cultures in Africa, the merchant occupies a sacred position among the Igbos. Commerce is central to understanding the world view of Igbos.
In an article for the Journal of Philosophy, Culture, and Religion, Gregory Chinweuba and Everistus Ezeugwu submit that appreciation for commerce is embedded in the language of Igbos. They have a created an intriguing panoply of words to reflect their love for trade, such as imu ahia (learning a trade), oru (starting an enterprise), and igba oso ahia (indulging in trick of marketing of another’s good with his consent at a price that raises capital). Aside from valuing work, the last description reveals a sophisticated understanding of the middleman’s role in increasing capital. Scholars also contend that for the Igbo people entrepreneurship is understood as a quest for profit motivated by innovation, efficient utilization of assets, and acquisition of deliverables. The Igbos are not only entrepreneurial but quite Schumpeterian in outlook.
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Systemic Risks Abound – Charles Hugh Smith
26 mei
If you wanted to design a system guaranteed to collapse in a putrid heap, you’d make moral hazard ubiquitous and you’d make the system 100% dependent on a hubris-soaked faux savior.
For the past 22 years, every time the stock market whimpered, wheezed or whined, the Federal Reserve rushed to soothe the spoiled crybaby. There are two consequential results of the Fed as savior:
1. The Fed has perfected moral hazard: everyone from the money manager betting billions to the punters gambling their stimmy money is absolutely confident I can’t lose because the Fed will always push the market higher.
What happens when participants are confident they can’t possibly lose? They make ever-riskier and ever-larger bets. The entire nation is in the grip of a moral hazard mania, all based on the confidence that the Fed will always push every market higher–always, without fail.
2. Organic (i.e. non-manipulated) market forces have been extinguished. There is now only one consequential force, the Fed. All markets are now 100% dependent on the Fed responding to every bleat from every punter who’s recklessly risky bet is about to go bad.
The Fed is now the perfect union of quasi-religious savior and Helicopter Parent: oh dear, our little darling got high and crashed the Porsche? Quick, let’s save our precious market from any consequences!
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Economics and the study of race – Arun Advani, Elliott Ash, David Cai, Imran Rasul
25 mei
In the wake of last summer’s Black Lives Matter protests, many have asked themselves what they are doing to tackle racial injustice. For economists, one central question is the extent to which the profession has examined the causes and consequences of racial inequality. This column reports evidence that race-related research in economic journals constitutes a far lower share than in comparable publications in sociology and political science. What’s more, economists over-estimate the extent of race-related research done by the profession. Understanding why economists produce so little race-related research is essential if the discipline is going to be able to reform.
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Bank of England Chief Economist: Avoid Inflation Surge “Like the Plague” – Nick Corbishley
29 mei
“An upside surprise to inflation is among the greatest risks”; we’d need “to tighten policy even more rapidly or on a more significant scale, or possibly both, in a way that would take the legs out of the recovery.”
“The situation we need to avoid like the plague is one where inflation expectations adjust before we do, or where we wait for proof positive that effects on inflation are not transitory before acting,” said Bank of England chief economist Andy Haldane during the Treasury Select Committee this week. “Because in both of those cases that would be doing too little too late.”
It’s not everyday you hear a central banker of an advanced economy voicing concerns about runaway consumer price inflation. Most of the time, central bankers are doing everything they can to play down such fears. The current price increases, they say, are “transitory” or “temporary,” and as such nothing to worry about. Haldane disagrees:
With interest rates at zero, “give or take”, and with the government and Bank of England injecting “unprecedented-in-peacetime fiscal and monetary stimulus” into the economy, Haldane believes that tapering the BoE’s bond purchases is not enough; it’s time to “turn off the tap,” he says. “This is serious money, edging up toward £1 trillion of QE.”
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Public Debt Got a Lot Worse from the Great Recession to the Great Lockdown – aniel Fernández Méndez
24 mei
The 2020 recession, which many countries are still going through, now has an “official” name: the Great Lockdown. In economic terms, the public sector’s response in practically all countries has been very swift and bold (which is not necessarily a good thing).1 This has caused the global public debt to skyrocket as never before. As a result, now more than ever, it is necessary to emphasize the dangers of public debt.
In this article, we will highlight the contrasts between this recession and the previous one (the Great Recession of 2007) to analyze the public-debt problem the world is facing. In a second article, we will analyze the economic dangers of excessive public debt.
During the economic expansion that ended in 2020, the public sector in most countries was almost totally complacent about deficit spending. Levels of public debt shot up practically everywhere. So public debt in the Great Lockdown was considerably greater than in the Great Recession in all of the major regions of the world.
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The rich, the poor, and the others: How monetary policy affects the distribution of income – Niklas Amberg, Thomas Jansson, Mathias Klein, Anna Rogantini Picco
23 mei
Fully understanding the distributional consequences of monetary policy requires looking at its impact over the entire income distribution and not simply at summary inequality measures like the Gini coefficient. Using uncensored administrative income data for Sweden, this column shows that while a monetary policy loosening substantially affects incomes across the entire income distribution, it does so relatively more in the tails, providing a U-shaped response pattern. The effects in the bottom are primarily driven by changes in labour income, whereas the effects in the top are mainly due to disparities in capital income.
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Forget Hemlines. Mom Jeans Are Now an Economic Indicator – Doug French
26 mei
There was once something called the Hemline Index introduced by economist George Taylor in 1926. The idea was that the hemline of women’s skirts signed where the economy and/or the stock market were headed. Short skirts meant good times; a falling economy was signaled by longer hemlines.
Marjolein van Baardwijk and Philip Hans Franses explored what they refer to as an urban legend in a 2010 paper, “The Hemline and the Economy: Is There Any Match?” The two authors collected hemline data from 1921 to 2009, matching hemlines with National Bureau of Economic Research (NBER) business cycle data.
Given that fashion creation and popularity take time, the authors applied a lag and and came to the conclusion in their short paper: “Supporting the urban legend, we find that poor economic times make the hemlines to decrease, which means that women’s dresses get lower, and that prosperity is correlated with a reduced hemline (more miniskirts). At the same time, and this is new to the available evidence, we find that there is a time lag of around three years.”
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***Car & Truck Sales Show: The Inflation Mindset Has Changed, Consumers Are Willing to Pay a Lot More, Generating not only Record Sales but also Record Gross Profits – Wolf Richter
27 mei
This change in the inflation mindset is likely not “temporary.”
Record new-vehicle retail sales despite slashed incentives by automakers, record new-vehicle transaction prices, spiking used-vehicle prices and trade-in values, very tight inventories on popular models, and record dealer profits – that’s what stimulus and stock-market gains along with supply disruptions produced in May. It has inflation written all over it, as the whole mindset has changed.
The average transaction price (ATP) of new vehicle sold to retail customers in May reached a record $38,255, according to J.D. Power estimates. The ATP is a function of the price of new vehicles sold to retail customers and of the mix of new vehicles sold: the shift to higher-end trucks and SUVs that we have been seeing in recent months helped push up the ATP.
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Memory and reconciliation: The dangers of common enemy narratives – Elena Esposito, Tiziano Rotesi, Alessandro Saia, Mathias Thoenig
23 mei
To secure peace in the aftermath of violent civil conflict requires working through legacies of difference, even hate. But narratives forged for the purpose of peacebuilding often present a distorted retelling of events. Using as its example the cultural impact of a film released decades after the end of the American Civil War, this column illustrates how a version of the past that promotes unity or agreement at the expense of truth may foster new divisions, hindering the reconciliation process over the long term.
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***Inflation Bites Chunk out of Personal Income & Spending – Wolf Richter
30 mei
Paying even more to get even less. Exactly what American consumers need the most in these trying times.
So we’ve got a little situation here. We’ve got a little bitty inflation uptick, I mean the worst inflation spike in three decades, and now total personal income from all sources, including from the now fading free-money-from-the-sky stimmies, rose 0.5% in April compared to April a year ago; but adjusted for inflation, “real personal income,” fell 3.0% year-over-year, according to the Bureau of Economic Analysis on Friday.
Month-over-month, and not adjusted for inflation, personal income from all sources plunged 13% in April from March to a seasonally adjusted annual rate of $21.2 trillion – after having spiked by 21% in March for a stimmie-powered historic WTF moment. Every one of the three waves of stimmies triggered a glorious overshoot. So going forward, most of those stimmies have been received and accounted for.
I indicated the 0.5% year-over-year increase in total personal income from all sources, not adjusted for inflation, with the upward-sloping green line. In a moment, we’ll get to what that green line looks like adjusted for inflation.
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The Worst-Kept Secret in America: High Inflation Is Back – Mark Hendrickson
29 mei
To most people, “inflation” signifies widespread rising prices. Economists have long argued, as a matter of technical accuracy, that “inflation” denotes an increasing money supply. Frankly, though, most people don’t care what happens to the supply of money, but they care a lot about the prices they pay, so I’ll focus primarily on the numerous rapidly rising prices Americans are paying today.
Following are several examples of the current inflation:
Corn, soybeans, and wheat have been trading at multi-year highs, with corn having risen from around $3.80 per bushel in January 2020 to approximately $6.75 now. Chicken wings are at all-time record highs. It is getting more expensive to eat.
Copper prices have risen to an all-time high. Steel, too, recently traded at prices 35% above the previous all-time set in 2008. Perhaps most famously, the price of lumber has nearly quadrupled since the beginning of 2020 and has nearly doubled just since January.
Naturally, with raw materials prices soaring, prices of manufactured goods are jumping, too. That is especially noticeable in the housing market, where the median price of existing homes rose to $329,100 in March—a whopping 17.2% increase from a year earlier.
The cost of driving is soaring, too. According to J.D. Power, cited in The Wall Street Journal, the average used car price has risen 16.7% and new car prices have risen 9.6% since January.
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