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Archive for 9. November 2019

Revisiting the euro’s north-south rift

Posted by hkarner - 9. November 2019

Date: 07-11-2019
Source: The Economist

Income gaps remain, but cross-border flows are more balanced

Since the euro zone was first engulfed by a sovereign-debt crisis a decade ago, northern member states have dished out plenty of strictures. “Greece, but also Spain and Portugal, have to understand that hard work…comes before the siesta,” advised Bild, a German tabloid, in 2015. Two years later, even as the crisis receded, Jeroen Dijsselbloem, then the Dutch finance minister, told southerners: “You cannot spend all the money on drinks and women and then ask for help.”

Northerners’ constant fear of underwriting southern irresponsibility has led politicians from Amsterdam to Helsinki to put the brake on banking reforms and fiscal integration across the zone. It has caused numerous fights over monetary policy, the latest of which is in full swing. On November 1st the European Central Bank (ecb) resumed quantitative easing (qe), the purchase of bonds using newly created money. The decision to do so, made in September, was roundly attacked by newspapers—and even former and current central bankers—in northern countries including Germany and the Netherlands. The complaints reflect savers’ dread of negative interest rates and a suspicion that easing lets indebted southern countries off the hook. Together this can make monetary policy seem like a source of transfers. Den Rest des Beitrags lesen »

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What is the illiquidity premium?

Posted by hkarner - 9. November 2019

Date: 08-11-2019
Source: The Economist: Buttonwood

A primer on the rewards and hazards of investing in hard-to-trade assets

Imagine two bonds listed on different exchanges that are otherwise identical. The risk-free rate of return is 2%. Investors hold bonds for an average of one year. A central bank acts as market-maker, supplying cash on demand for bonds. To cover its costs, the price the central bank pays (the bid) is a bit below the fair value of a bond, which is the price it requires buyers to pay for it (the ask). The bid-ask spread is the cost of trading. For a-bonds it is 1%. For b-bonds, which are listed on an inefficient exchange that charges higher fees, it is 4%.

What is the yield on each bond? It varies with trading costs. Investors on average make one round-trip sale-and-purchase a year. So the yield they demand on a-bonds is 3%. That includes the risk-free rate of 2% plus 1% compensation for trading costs. By the same logic, the yield on b-bonds is 6%. The extra 3% return required on the harder-to-trade security is known as the illiquidity premium.

Illiquidity matters less if investors have longer horizons. A pioneering paper by Yakov Amihud and Haim Mendelson, published in 1986, posits that investors with the shortest horizons hold securities with the lowest trading costs; and bonds that are relatively illiquid are held by long-term investors, who can spread the higher trading costs over a longer holding period. In principle patient investors can reap a reward from illiquidity. But in practice the risks that go with it often prove to be bigger than many investors had expected. Den Rest des Beitrags lesen »

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America’s War on Chinese Technology

Posted by hkarner - 9. November 2019

Jeffrey D. Sachs, Professor of Sustainable Development and Professor of Health Policy and Management at Columbia University, is Director of Columbia’s Center for Sustainable Development and of the UN Sustainable Development Solutions Network. His books include The End of Poverty, Common Wealth, The Age of Sustainable Development, Building the New American Economy, and most recently, A New Foreign Policy: Beyond American Exceptionalism.

In the run up to the Iraq War, then-US Vice President Richard Cheney declared that even if the risk of weapons of mass destruction falling into terrorist hands was tiny, say 1%, we should act as if it were certain by invading. The US is at it again, creating a panic over Chinese technologies by exaggerating tiny risks.

NEW YORK – The worst foreign-policy decision by the United States of the last generation – and perhaps longer – was the “war of choice” that it launched in Iraq in 2003 for the stated purpose of eliminating weapons of mass destruction that did not, in fact, exist. Understanding the illogic behind that disastrous decision has never been more relevant, because it is being used to justify a similarly misguided US policy today. 

The decision to invade Iraq followed the illogic of then-US Vice President Richard Cheney, who declared that even if the risk of WMDs falling into terrorist hands was tiny – say, 1% – we should act as if that scenario would certainly occur.Such reasoning is guaranteed to lead to wrong decisions more often than not. Yet the US and some of its allies are now using the Cheney Doctrine to attack Chinese technology. The US government argues that because we can’t know with certainty that Chinese technologies are safe, we should act as if they are certainly dangerous and bar them. Proper decision-making applies probability estimates to alternative actions. Den Rest des Beitrags lesen »

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Die Zunahme des Nationalismus nach dem Mauerfall

Posted by hkarner - 9. November 2019

George Soros

George Soros is Chairman of Soros Fund Management and the Open Society Foundations. A pioneer of the hedge-fund industry, he is the author of many books, including The Alchemy of Finance, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What it Means, and The Tragedy of the European Union: Disintegration or Revival? His most recent book is In Defense of Open Society (Public Affairs, 2019).

BERLIN – Der Fall der Berliner Mauer am Abend des 8. November 1989 beschleunigte den Zusammenbruch des Kommunismus in Europa dramatisch und plötzlich. Das Ende der Reisebeschränkungen zwischen DDR und Bundesrepublik versetzte der abgeschotteten Gesellschaft der Sowjetunion den Todesstoß. Zugleich markierte es einen Höhepunkt beim Aufstieg offener Gesellschaften. 

Ich engagierte mit zu diesem Zeitpunkt bereits ein Jahrzehnt für das, was ich als meine politische Philanthropie bezeichne. Ich entwickelte mich zu einem Fürsprecher des Konzepts der offenen Gesellschaft, das mir von Karl Popper, meinem Mentor an der London School of Economics, vermittelt worden war. Von Popper lernte ich, dass perfektes Wissen unerreichbar ist und dass totalitäre Ideologien, die für sich in Anspruch nehmen, im Besitz der ultimativen Wahrheit zu sein, sich nur mittels Repressionen durchsetzen können. Den Rest des Beitrags lesen »

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The Siren Song of Strategic Autonomy

Posted by hkarner - 9. November 2019

Daniel Gros is Director of the Centre for European Policy Studies.

A recent report by the European Commission’s in-house think tank has called for Europe to aim for more “strategic autonomy.” But what may seem like an innocuous goal could easily take an economic-nationalist turn, with serious implications for world trade and the global economy.

BRUSSELS – For over a year, US President Donald Trump’s protectionist war against China – and his broader use of import tariffs to advance geopolitical objectives – has been fueling anxiety about the future of world trade. But tariffs are only the tip of the iceberg of economic nationalism. If the world doesn’t navigate carefully, hidden hazards could sink the global trading system.

The United States has not found any followers in its aggressive use of tariffs. In developing countries, there is little pressure to implement similar measures, because so many firms manufacture globally, and even those that do not depend on global supply chains. And in developed economies, major sectors that struggled to cope with import competition in the past – such as the clothing and steel industries – have by now mostly adjusted, and no longer play an important role. This explains why US business leaders largely opposed Trump’s tariffs. Den Rest des Beitrags lesen »

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