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The High Stakes of the Coming Digital Currency War Nov 11, 2019 Kenneth Rogoff

Posted by hkarner - 12. November 2019

Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. He is co-author of This Time is Different: Eight Centuries of Financial Folly and author of The Curse of Cash.

Just as technology has disrupted media, politics, and business, it is on the verge of disrupting America’s ability to leverage faith in its currency to pursue its broader national interests. The real challenge for the United States isn’t Facebook’s proposed Libra; it’s government-backed digital currencies like the one planned by China.

SOUTH BEND – Facebook CEO Mark Zuckerberg was at least half right when he recently told the United States Congress that there is no US monopoly on regulation of next-generation payments technology. You may not like Facebook’s proposed Libra (pseudo) cryptocurrency, Zuckerberg implied, but a state-run Chinese digital currency with global ambitions is perhaps just a few months away, and you will probably like that even less.

Perhaps Zuckerberg went too far when he suggested that the imminent rise of a Chinese digital currency could undermine overall dollar dominance of global trade and finance – at least the large part that is legal, taxed, and regulated. In fact, US regulators have vast power not only over domestic entities but also over any financial firms that need access to dollar markets, as Europe recently learned to its dismay when the US forced European banks to comply with severe restrictions on doing business with Iran.America’s deep and liquid markets, its strong institutions, and the rule of law will trump Chinese efforts to achieve currency dominance for a long time to come. Den Rest des Beitrags lesen »

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Europe’s Wage-Price Puzzle

Posted by hkarner - 12. November 2019

By Richard Varghese

Does higher wage growth fuel inflation? In Europe, that has historically been the case. But the link between wage growth and inflation has weakened in recent years amid low inflation expectations, robust corporate profitability, and strong competitive pressures.

The price of labor—namely wages—is rising at a robust pace, especially in the European Union’s newer member states. Yet, surprisingly, inflation has barely risen. We set out to shed light on this puzzle in Chapter 2 of the Regional Economic Outlook: Europe.

It is likely that robust wage growth will not meaningfully spur inflation in the near future.

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The Power of Combining 5G and AI

Posted by hkarner - 12. November 2019

Date: 11-11-2019
Source: The Wall Street Journal By James Rundle and Angus Loten

Putting the two technologies together will change everything from drug making to brewing beer

Among other advantages, 5G networks let internet-connected devices transmit much more information much more quickly.

The convergence of artificial intelligence with internet-connected machines and superfast 5G wireless networks is opening possibilities across the planet—and even in outer space.

These advancements are allowing farmers to pick the optimal way to grow crops, pharmaceutical companies to shorten the development times of new drugs, researchers to track pandemics, and cities to manage their resources in a manner that was pure science fiction at the turn of the millennium.

Taken alone, these technologies have enormous potential in their own right, but combined, experts say, they have the power to transform industrial technology on a scale not seen since the advent of steam power.

The key ingredient, the experts say, is 5G. It gives developers the ability to scale up projects more easily because there’s no need to build extensive fiber-optic networks to keep data flowing. What’s more, 5G networks let internet-connected devices transmit much more information much more quickly—which in turn is spurring developers to come up with more advanced machines that can take maximum advantage of the capability. Den Rest des Beitrags lesen »

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Global Economy Struggles With Negative Rates

Posted by hkarner - 11. November 2019

Date: 10-11-2019
Source: YaleGlobal: Will Hickey

Japan and the EU use negative interest rates to maintain feeble economic growth, but such low rates for the US could destabilize the banking system

To sustain economic growth, central banks in advanced economies have steadily reduced interest rates, encouraging consumers to spend. About 30 percent of the world’s investment-grade securities is in negative rate territory – which means lenders and savers pay others to use their funds. But economies are not so easily moved. “Cheapening money to incentivize economic activity is no longer working,” explains author Will Hickey. “European central banks in particular are out of ideas to jump-start economic activity. The near negative and declining interest rates in developed countries around the world have caused the dollar to soar, which has a knock-on effect in developing countries like Indonesia, Turkey and Nigeria that have borrowed heavily in dollars and must repay them from earnings in local currencies that have steadily devalued.” Negative rates are especially harmful for pension funds and the retired who rely on interest income. One economist warns against US reliance on negative rates, which could destabilize the banking system. New ways to spur economic activity are needed, and that includes innovation. – YaleGlobal
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How to Transform a ‘Big, Old’ Company into an Agile Digital Business

Posted by hkarner - 10. November 2019

Date: 10-11-2019
Source: The Wall Street Journal By Irving Wladawsky-Berger

Agility, the ability to respond to rapidly changing technologies and markets, is key

A quarter century into the digital age, many corporations and institutions still struggle to embrace digital technology advances.

At a conference several years ago, I learned about the Sunday-night/Monday-morning syndrome. The term captures the frustration of employees who, after having access to the latest devices and applications at home, arrive at work on Monday morning to once again wrestle with primitive devices and applications that their IT departments support.

“If digital technologies are consistently making our consumer lives easier, why aren’t they making it easier to succeed in business?” ask Jeanne Ross, Cynthia Beath and Martin Mocker in „Designed for Digital,“ their recent book. “Why are business leaders anxious about digital disruption rather than marveling about how quickly they can provide new, exciting, and ever-improving digital solutions to their customers?”  Den Rest des Beitrags lesen »

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Von der Leyens erste Grundsatzrede: „Europa muss die Sprache der Macht lernen“

Posted by hkarner - 10. November 2019

Date: 09-11-2019
Source: SPIEGEL

Europas Partner müssen sich nach Ansicht der gewählten EU-Kommissionspräsidentin von der Leyen darauf einstellen, dass sich das Bündnis künftig härter, machtbewusster zeigen wird. Als Beispiel nannte sie China.

Ursula von der Leyen wird am 1.Dezember neue EU-Kommissionspräsidentin

Europa muss nach Auffassung der künftigen EU-Kommissionspräsidentin Ursula von der Leyen energischer in der Welt auftreten.

„Europa muss auch die Sprache der Macht lernen“, sagte sie in Berlin in einer Europa-Rede vor der Konrad-Adenauer-Stiftung. „Das heißt zum einen, eigene Muskeln aufbauen, wo wir uns lange auf andere stützen konnten – zum Beispiel in der Sicherheitspolitik“, sagte die frühere deutsche Verteidigungsministerin. „Zum anderen die vorhandene Kraft gezielter einsetzen, wo es um europäische Interessen geht.“

„Wir können die Bedingungen beeinflussen, zu denen wir Geschäfte machen“

Als Beispiel nannte von der Leyen die Handelspolitik. China sei zwar ein wichtiger Handelspartner für Europa. Aber umgekehrt sei die EU Pekings größter Handelspartner. „Wir können die Bedingungen beeinflussen, zu denen wir Geschäfte machen“, sagte von der Leyen. Dies geschehe auch bereits. So freue man sich über jedes ausländische Unternehmen, das an Ausschreibungen in der EU teilnehme, sei es für den Bau von Autobahnen oder Stromtrassen. „Aber wir werden künftig stärker darauf achten, dass sich diese Unternehmen auch an unsere Standards halten, zum Beispiel was Arbeitsbedingungen und Umweltschutzvorschriften angeht.“ Den Rest des Beitrags lesen »

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How big tech is dragging us towards the next financial crash

Posted by hkarner - 10. November 2019

Date: 09-11-2019
Source: The Guardian

Like the big banks, big tech uses its lobbying muscle to avoid regulation, and thinks it should play by different rules. And like the banks, it could be about to wreak financial havoc on us all. By Rana Foroohar

‘In every major economic downturn in US history, the ‘villains’ have been the ‘heroes’ during the preceding boom,” said the late, great management guru Peter Drucker. I cannot help but wonder if that might be the case over the next few years, as the United States (and possibly the world) heads toward its next big slowdown. Downturns historically come about once every decade, and it has been more than that since the 2008 financial crisis. Back then, banks were the “too-big-to-fail” institutions responsible for our falling stock portfolios, home prices and salaries. Technology companies, by contrast, have led the market upswing over the past decade. But this time around, it is the big tech firms that could play the spoiler role. Den Rest des Beitrags lesen »

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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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