Spring Meetings of the IMF/World Bank - April 13 2019 EconVue Spotlight

This past week at the Spring Meetings of the World Bank/IMF in Washington,  an overarching theme was the independence of central banks.  I was asked one question more than any other:  what did I think of President Trump’s two nominees to the Federal Reserve Board? Thanks to a recent podcast interview with Michael Lewis, one of our EconVue experts, I was able to share his insight that the only person who matters on the Fed Board is the chairman, and therefore it doesn’t matter who else is nominated. (Click here for the full podcast). 

For a pithy quick-take on the IMF meetings, Jacob Frankel got the tone of the meetings just right.  He also stressed the necessity of central bank independence, and said that although global growth was moderate, no recession is in sight and interest rates will be more or less steady.  The US-China trade negotiations are a concern, and certainly Secretary Mnuchin’s remarks to the Bretton Woods Committee were the most reported, but I think trade has slow motion effects. Finance by contrast is instantaneous, and financial technology can be used to reduce income inequality through banking the unbanked, and innovations such as nanoloans and micro-mortgages. 

Christine Lagarde, the current IMF leader, was surprisingly open to the possibility of creative destruction. “I think the role of the disruptors and anything that is using distributed ledger technology, whether you call it crypto, assets, currencies, or whatever ... that is clearly shaking the system. ” She also hosted a debate on the subject with JPMorgan and Circle(see link below). There is no question that fintech is here to stay.

Two other speeches captured my attention, one I agreed with and another that left me shaking my head. The first, by LSE economist Keyu Jin on the subject of US dollar dominance warned that the effect of liberalizing China’s financial system would be to create more, not less global financial turbulence.  The second by Kenneth Rogoff  “Is this the Beginning of the End of Central Bank Independence?” was problematic.  He opined that negative interest rates were not really a bad thing.  I disagree.  Economists sometimes forget politics. In the US, negative interest rates would bring calls for the end of the Federal Reserve.

This week we also bring you a very wide range of opinions from our EconVue experts, from Xi Sun who believes that the US will lose its battle with Huawei, to Robert Shapiro on who owns and profits from your personal information, and Karim Pakravan on the close relationship of financial markets and central banks post-2008.  You’ll find other links to some fascinating and iconoclastic economic research, such as Diane Coyle’s essay on the limits of knowledge and what that means for economics, and new research that shows that Millennials are just as enamored of their cars as Baby Boomers--and of course, the everlasting Brexit.

RESEARCH BY OUR EXPERTS

No Danger of a Trump ‘Takeover’ of the Fed
Michael Lewis

Commentary on the struggle, or lack thereof, for “partisan” control of the Fed.

The Powell Put: Fed Easing and Market Performance
Karim Pakravan 

The latest quarterly report by the Bank for International Settlements (BIS) underlines the change in the relationship between the major central banks and financial markets.  Claude Borrio, the BIS’s Chief Economist, describes the “extraordinarily tight” relationship between central banks and financial markets in the aftermath of the financial crisis and recession of 2008. Thus, the financial markets scrutinize the central banks for cues, while at the same time relying on central bank “puts” for comfort.

Sorry U.S., Huawei will Become Stronger, Better and Safer
Xi Sun 

“The China-US relationship can never be too good or too bad” or so believed Deng Xiaoping, the chief architect of modern China. Today, however, there are new views according to which the China-US relationship will never return to how it was in the past, and that it cannot avoid the “Thucydides trap.” It is arguable whether China and the United States have started a “new Cold War,” but the trade and technology war is clearly already going on.

Chinese Surveillance Complex Advancing in Latin America
R. Evan Ellis 

While much attention has been given to the risks potentially posed by Huawei 5G and other architectures and equipment in the telecommunications sector, this article looks at a similar, but less discussed issue: the growing presence of Chinese "surveillance and control" systems in Latin America.

Tech and Crypto Alignments
Collin Canright 

Financial and technology organizations in Chicago have had a busy first quarter of events. This issue links to stories on alignment and community building in cryptoasset, wealth tech, and payments markets.

Who Owns Americans’ Personal Information and What Is It Worth?
Robert Shapiro 

For a clear sense of how much personal information the large internet platforms collect and analyze, the two authors of this study, a Millennial and an older Baby Boomer, downloaded their personal data files from Google and Facebook. 

STORIES IN OUR SPOTLIGHT

IMF/World Bank Meetings

Mnuchin: China to establish ‘enforcement office’ as part of any U.S. deal
Adam Behsudi and Jesse Chase-Lubitz 

The United States and China are working on the establishment of an “enforcement office“ to help Beijing live up to commitments it makes in a trade deal with the Trump administration, Treasury Secretary Steven Mnuchin reiterated on Wednesday.

Christine Lagarde Pits Circle Against JPMorgan in IMF Debate
Brady Dale 4/10/2019 Coin Desk

The IMF is taking crypto seriously as a disruptive force, as should anyone in finance. Full panel discussion here.

Full interview with JP Morgan Chase's international chairman Jacob Frankel
4/11/2019 CNBC

Moderate economic growth, no recession, no interest rate cuts, unease about US-China trade & Brexit, concern over central bank independence.

Central Bankers’ Fiscal Constraints
Kenneth Rogoff 1/4/2019 Project Syndicate

With policy interest rates near zero in most advanced economies (and just above 2% even in the fast-growing US), there is little room for monetary policy to maneuver in a recession without considerable creativity. But those who think fiscal policy alone will save the day are stupefyingly naive.

Tech

Big Tech must pay for access to America’s ‘digital oil’
Rana Foroohar 4/7/2019 Financial Times

The collection and sale of personal data via targeted advertising is the business model. It’s not ancillary.

Bitcoin Investors Targeted With Audits By Canada's Federal Tax Agency
Kyle Torpey 3/6/2019 Forbes

Oh Canada!

The EU’s censorious copyright directive will create two internets
Matthew Lesh 3/26/2019 CAPX

So now there will not just two but three major Internets- the World Wide Web, the Chinese Internet and the EU Internet. Where will innovation thrive?

Macro

Everything we don’t know
Diane Coyle 3/31/2019 the Enlightened Economist

“The world doesn’t easily submit to the dreams of tidy minds.” It’s not just cognitive bias. It’s the world outside our heads.

The Complex Relation Between Receptivity to Pseudo-Profound Bullshit and Political Ideology
Artur Nilsson, Arvid Erlandsson, Daniel Västfjäll 3/18/2019 Society for Personality and Social Psychology

This is a real academic article.

This might be a good time to start a write-in campaign to nominate Keith Poole and Howard Rosenthal for the Econ Nobel
Oliver Beige 3/31/2019 Twitter

The extraordinary divisiveness that has marked American Politics since Nov 2000 has resulted in Congressional voting to collapse into a one dimensional near Parliamentary voting structure...that is, no other period in American history shows this pattern.

U.S.

Generational Trends in Vehicle Ownership and Use: Are Millennials Any Different?
Christopher R. Knittel & Elizabeth Murphy 3/2019 SSRN

Myth vs reality: "In contrast to the anecdotes, we find higher usage in terms of vehicle miles traveled (VMT) compared to Baby Boomers."

What the Wyden-proposed tax on unrealized capital gains might mean for you
Darla Mercado 4/3/2019 CNBC

How to turn the US into Venezuela. The need to create liquidity to pay annual taxes on unrealized gains would tank stocks, overturning incentives for patient capital in private markets too.

China

The Trade War with America is a Strategic Gift for China
Jeyu Jin 1/2019 Financial Times

Millions of Chinese youth 'volunteers' to be sent to villages in echo of Maoist policy
Agence France-Presse 4/12/2019

De-urbanization begins: 10 million Chinese youth sent to the countryside. Not a repeat of the Cultural Revolution, this policy is based on economics.

China’s Outbound Investment Drops Despite BRI – Analysis
Michael Lelyveld 4/9/2019 Euro Asia Review

Despite China’s BRI – “a check of past ministry reports found that Outbound Direct Investment dropped 6.9 percent from a year earlier, when growth was relatively strong.” A shift to internal investment to support domestic growth seems the likely reason.

China Company Bond Delinquencies Quadrupled Last Quarter
4/1/2019 Bloomberg

Chinese companies' bond defaults are soaring- almost quadruple the same period in 2018.

U.S. and China Got Into a Trade War and Mexico Won
Matthew Townsend and Eric Martin 3/27/2019 Bloomberg

Global supply chains have been shifting for some time. Higher logistics costs and wages in China were already part of this story. The recent tariffs were just an accelerant.

Europe

German firm to run Greek airports as sell-off begins
Sam Ball 8/20/2015 Finance 24

German firms are buying Greece’s state assets at auction. Is Greece really a German economic colony, rather than a full-fledged EU member?

Forget Brexit, we are headed for Brino
4/1/2019 Financial Times

Worth a re-read.

Why 'no deal' Brexit could morph into 'many deals' future
Paul Sheard 3/27/2019 Financial Review

Why "no deal" is a misnomer.