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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***A rational backlash against globalisation – Lubos Pastor, Pietro Veronesi
28 september
The vote for Brexit and the election of protectionist Donald Trump to the US presidency – two momentous markers of the ongoing pushback against globalisation – led some to question the rationality of voters. This column presents a framework that demonstrates how the populist backlash against globalisation is actually a rational voter response when the economy is strong and inequality is high. It highlights the fragility of globalisation in a democratic society that values equality.
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The Fed Is Flying Blind – Thorsten Polleit
27 september
US interest rates keep creeping upwards, largely because the US Federal Reserve (Fed) is expected to ramp up borrowings costs further in the coming quarters. The Federal Funds Rate is now in a bandwidth of 1.75 to 2.0 per cent, and the yield on 10-year Treasuries has recently climbed slightly above the 3 per cent level. Higher, let alone further rising, borrowing costs can be expected to have far-reaching consequences for the economy and financial markets in particular.
This becomes clear if we reflect upon the Fed’s interest rate policy by employing sound economic theory. Let us therefore begin with highlighting five effects that result from the Fed lowering market interest rates – by slashing its Federal Funds Rate and/or by bidding up bond prices and thus suppressing capital market yields across the board. For this should help us better understand what the Fed’s current tightening of monetary policy might hold in store.
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Inversion Watch: Dancing the Global “Yield Curve” Tango? – Wolf Richter
29 september
Treasury yield curve survives rate hike upright. Yield curves steepen in China, Japan & Germany. Era of NIRP scheduled to end.
The Fed raised its target range by a quarter point on Wednesday, but had already been completely baked in: US Treasury yields barely budged. And the “yield curve” – that monster that tends to “invert” late in the rate-hike cycle, where short-term yields are higher than long-term yields, which tends to be followed by recessions or worse – hasn’t inverted yet because long-term yields have risen in parallel. That was not a given two months ago.
The chart below shows the yield curves on September 28 at the close (red line) and on December 14, 2016, when the Fed got serious about raising rates (blue line). The red line has “flattened” compared to the black line, especially from the 2-year yield on out, and the 24-basis-point spread between the 2-year and the 10-year markers has shriveled to 24 basis points, from the 127-basis-point spread on December 14, 2016:
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China’s Yuan Devaluation Is a Big Mistake – Daniel Lacalle
29 september
I find it amusing to read some analysts stating that the Chinese government’s stealth yuan devaluation has offset the impact of tariffs.
A 10% tariff hurts a small part of the economy. However, a 10% devaluation hurts all Chinese citizens equally and massively.
The yuan devaluation is not a tool for exports. Devaluations are a form of price control and a disguised reduction of salaries. As such, they hurt more than what they aim to protect.
However, with rising household and corporate debt. the yuan devaluation is a shot in the foot of the economy, as purchasing power is being diminished and loan repayment capacity is falling. It is wrong to believe that a devaluation does not pose a problem for debt incurred in yuan. Margins are falling because the yuan is devalued, but costs are not falling in tandem.70% of corporate costs do not fall with the yuan, they rise -energy, fixed costs, imported goods and services- and working capital requirements have been rising, as we have seen in the published earnings of most of the companies in the Shanghai Index. Around 65% of the index generates returns below the cost of capital and most companies pay interest charges with additional debt, according to Moody’s, and evident in the second quarter results published.
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***Tax bargaining – Peter Egger, Nora Strecker, Benedikt Zoller-Rydzek
24 september
The OECD estimates that more than $100 billon is lost each year to tax avoidance by MNEs. One way that firms do this is by using their size and mobility to bargain for tax breaks. This column uses French data to identify the nature of such bargaining. It finds that the scale of the projected tax payment accounts for 41% of the tax break, and a credible threat to relocate accounts for the rest.
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***How Do We Change Our Lives in a System That’s Broken? – Charles Hugh Smith
30 september
Rather than fight a system designed to thwart us, we need a model for our own lives that bypasses the perverse tides and obsoletes the impediments in our path.
Everyone wants to change their lives for the better (or preserve what’s positive), and this is relatively straightforward in a healthy system with positive incentives and a transparent, productive set of rules and feedbacks.
But what if the system is broken? How do we change our lives for the better in a dysfunctional system of unearned privilege and perverse incentives? Needless to say, it’s difficult, and this is why we see a rise in inward-directed solutions.
If we can’t change the external world we inhabit, then the “solution” is to nurture an inner tranquility. It’s no wonder that Taoism–perhaps the ultimate inner-directed philosophy–arose during the Warring States era in China, when social unrest and conflict were endemic.
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Ownership and power structure: Together at last – Laura Alfaro, Nicholas Bloom, Paola Conconi, Harald Fadinger, Patrick Legros, Andrew Newman, Raffaella Sadun, John Van Reenen
26 september
Economists have largely ignored the deep interdependency between integration and delegation. This column describes a new theory of integration and delegation choices aimed at shedding light on how these distinct elements of organisational design interact. Contrary to what is suggested by a naïve one-dimensional approach, the model predicts that delegation and outsourcing should be negatively correlated, a prediction that holds up well when the model is applied to data for thousands of firms across many industries and countries.
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US Retailers Warn Trade Wars Will Unleash “Unavoidable” Price Hikes Before Holidays – Tyler Durden
28 september
While it seems that trade disputes between the US, Mexico, and Canada are de-escalating, the trade conflict with China is not. President Trump ramped up the trade war on Monday as $200 billion in Chinese imports took effect. This is the third round of US tariffs on Chinese imports, a significant escalation of the conflict between the world’s two largest economies.
And caught in the middle of the crossfire are US retailers, who have spent a great deal of time on investor conference calls warning about imminent price hikes during the upcoming holiday season, which could send shock waves through the wallets of American consumers.
The chief executives from Walmart, Target, Gap Inc. and Best Buy, among others, have been some of the most vocal companies warning about “unavoidable” price hikes.
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Gold in the “Everything Bubble”: Effective Diversification? – Wolf Richter
24 september
What do you do when nearly all asset classes are overvalued?
Diversification is one of the oldest principles by which people try to hang on to their wealth, however little they might have. Don’t put all your eggs in one basket, it goes. Diversification is not designed to maximize profits or minimize costs. It’s designed to get you through a smaller or larger fiasco, not necessarily unscathed but with at least some of your eggs intact so that you can go to market another day. This search for stability is a critical concept when looking at gold as diversification of risk in other asset classes.
There are many reasons to own or trade gold that are beyond the scope of my thoughts here on diversification. So I’ll leave them for another day.
The classic and most basic diversification for American households has been the triad of stocks, bonds, and real estate. In the past, it was often held that when stocks go up, bonds decline. This has to do in part with the Fed, which tends to raise rates when things get hot, thus driving up bond yields (which means by definition that bond prices decline). So stocks and bonds balanced each other out to some extent.
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GDP Growth Is Not the Same Thing as Real Economic Growth – Frank Shostak
25 september
In the New York Times September 14, 2018, in an article “We’re Measuring The Economy All Wrong,” the writer of the article David Leonhardt complains that despite strong gross domestic product (GDP) data most people don’t feel it. The writer of the article argues that,
The trouble is that a handful of statistics dominate the public conversation about the economy despite the fact that they provide a misleading portrait of people’s lives. Even worse, the statistics have become more misleading over time.
According to the accepted rule of thumb, recessions are about at least two quarters of negative growth in real gross domestic product (GDP). Recessions, according to this way of thinking, are seen as something associated with the so-called strength of the economy. The stronger an economy is the less likely it is to fall into a recession. The major cause of recessions is seen as various shocks, such as a sharp increase in the price of oil or some disruptive political events, or natural disasters or a sudden fall in consumer outlays on goods and services. Obviously then, if an economy is strong enough to cope with these shocks then recessions can be prevented, or at least made less painful. For instance, a well-managed company with a well-managed inventory is likely to withstand the effects of various shocks versus a poorly managed company.
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The curiously varied impact of recessions on political stability: New evidence – Nathan Nunn, Nancy Qian, Jaya Wen
29 september
Cultural values and beliefs have an impact on social and economic development, but the interplay between culture and political institutions is still not well understood. This column examines the effect of trust on political stability in democratic and non-democratic regimes, specifically in the face of severe economic downturns. It finds that democratic regimes with high levels of trust are much less likely to experience leader turnover than low-trust countries, while there is no effect among non-democracies, and that countries with higher levels of trust experience faster economic growth in the years immediately following a recession.
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The resilience of EU member states to the Global Crisis – Lucia Alessi, Peter Benczur, Francesca Campolongo, Jessica Cariboni, Anna Rita Manca, Balint Menyhert, Andrea Pagano
26 september
Over recent decades, scholars and policymakers have been exploring how to make economies more resilient to potential shocks. This column investigates which EU members showed resilience during the Global Crisis and attempts to identify characteristics associated with resilience. The results reveal a lot of heterogeneity amongst countries, and those that are more resilient in the short run are not necessarily those with superior recoveries down the line. Further analyses show that social expenditures, political stability, and competitive wages are important for impact, medium-run, and ‘bounce forward’ resilience, respectively.
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One Step Closer to Recession – Jim Rickards
27 september
As you know by now, the Federal Reserve raised interest rates again yesterday, its eighth increase since the rate hike cycle began in 2015.
In his post-announcement press conference, Jerome Powell cited a strong economy, low unemployment, solid growth, etc. He said that “It’s a particularly bright moment” for the economy.
Barring significant developments, the Fed may raise rates again in December and perhaps three times next year.
Meanwhile, the Commerce Department announced this morning that second quarter U.S. GDP expanded at a 4.2% annualized rate, confirming the earlier estimate.
On the surface it might look everything is great, that it is a particularly bright moment for the economy. But if you take a hard look behind the numbers, a different picture emerges.
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Self-fulfilling pessimism: The fiscal policy doom loop – Antonio Fatás
28 september
The damage done by procyclical fiscal policy in the euro area between 2010 and 2014 is likely to be even larger than previous studies have suggested. The column argues that fiscal policymakers at the time created a ‘doom loop’, with unfounded pessimism feeding into policy, and the consequences of those policies increasing pessimism. This has created hysteresis, permanently reducing GDP.
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Here’s The Reason Why Dollar Funding Costs Are Exploding – Tyler Durden
28 september
With the market’s attention yesterday focused on the historic Kavanaugh hearing, it is understandable that the biggest markets story slipped by largely unnoticed: as we noted yesterday morning, that was the sudden spike wider in various dollar basis swaps (i.e. funding costs), amid what appeared to be a widespread, dollar shortage.
Specifically, the cost to hedge FX risk moved sharply higher for foreign investors that hedge USD corporate bond holdings by rolling 3-month FX forwards. On an annualized basis the 3-month hedging cost jumped 47bps to 318bps for JPY/USD and 23bps to 323bps for EUR/USD. As shown in the chart below, the one-day move in the 3 month EUR swap was the biggest since the financial crisis:
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President-Elect of Mexico’s Bombshell: Economy in “Situation of Bankruptcy” – Don Quijones
24 september
And why are Bank of Mexico executives and employees resigning in droves?
Around 200 central bank employees, including 20 senior executives, have left their posts at the Bank of Mexico (Banxico) since presidential elections on July 1 handed a resounding victory to populist Andrés Manual Lopez Obrador (or AMLO). Unsurprisingly, their sudden departure has a lot to do with money.
One of AMLO’s manifesto pledges was to slash salaries for senior government officials and bureaucrats as part of sweeping cost-cutting measures. So far, he’s kept to his word. Last week, Congress, now under the majority control of his party, Morena, passed a law that will make it impossible for any state employee to earn more than the president. The gross monthly salary of the current president, Enrique Peña Nieto, is 209,135 pesos ($11,700). AMLO has pledged to cut the salary in half when he takes over the post on December 1.
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