The Great Decoupling - August 25 2019 EconVue Spotlight

This year's symposium hosted by the Federal Reserve Bank of Kansas City was emblematic of the diminished power of central bankers around the world. As Chair Jay Powell met with cohorts at Jackson Hole, his boss, who may or may not have the power to fire him, called Powell an enemy of the people, along with President Xi Jinping. It is hard to imagine a greater party dampener. Attendance was down as well. For a balanced look at why central banking is in decline, Adair Turner's oped in the Financial Times lays out both the problems and the cure, which is for fiscal stimulus to step in, particularly from the EU.

At the same time, President Trump's actions and furious remarks on China tanked markets on Friday. To be fair, after the US announced a Christmas tariff reprieve, and just hours before the Jackson Hole meetings, China reacted with retaliatory tariffs that ignored US overtures. I have long thought that the US-China trade negotiations are being driven more by crosscurrents in China than dissension in the US. In fact, there is remarkable political unity in the US around "doing something" about China. 

It's not just the US and China, or monetary policy. We're experiencing a period of global realignment. Raghuram Rajan from the University of Chicago, former central bank governor of India, has written a thought-provoking new book . He discusses the interaction of governments, markets and less well understood, the local communities where we really live our lives. Rajan ascribes recent populism to the human need for community that has been subsumed to globalization.

Our podcast follows along in this vein of fundamental changes taking place with unforeseen consequences. EconVue expert Nikolai Tagarov discusses Venezuela and the role of oil, drugs, and immigration in a country that is an historic economic failure. Tagarov, who has advised both the European Commission and the European Development Bank on these issues, sees a new regional realignment emerging, including a revitalization of the Monroe Doctrine. President Trump has reportedly tried to invoke a naval blockade to facilitate regime change.

Finally, I had a wonderful time in Maine at Camp Kotok. Jim Bianco led our panel on Modern Monetary Theory. I have included the audio link below. That idyllic time suddenly seems far away- just two very long and eventful weeks ago. 

World

Hale Report Podcast: Venezuela - Lawyers, Guns & Money
Nikolai Tagarov

Raghuram Rajan: Markets and State Leave Community Behind
8/16/2019 IMF Podcast

Thoughtful discussion of the balance between the state, markets, and communities—and how that balance has gone awry in the age of globalization.

Japan and US Aim to Sign Trade Deal by September
8/23/19 Asia Nikkei

The trade agreement between Japan and the US reported this weekend at the G7 meeting in Biarritz is the underreported story of the weekend, and a win for both Trump and Abe.

Asia Local/Global - Interview with Naoki Ito (Audio)
Evan Feigenbaum 8/22/2019 Carnegie Radio 

To grasp the depth of Japan’s interaction with America, you have to get out of Washington and Tokyo. 

The Newfoundland Lesson   
David Hale, Summer 2003 International Economy

Greenland's purchase would not be the first time that a country altered its sovereignty to pay overwhelming debt. In 1933 Newfoundland was a separate dominion. It gave up its independence to Britain rather than default. Fifteen years later, it became part of Canada.

Did Trump cancel his Denmark visit because Greenland is not for sale? – video report
8/21/2019 The Guardian

If Denmark sends $600M each year to Greenland, that means 5.7M Danes transfer an amount equal to about $100 per person to 55,000 Greenlanders, who therefore receive a subsidy of about $11,000 per person from Denmark.

Modi seeks reforms to India's stuttering economy
Ken Koyanagi 8/14/2019 Nikkei Asian Review

India’s GDP will surpass Japan’s in the next decade. But even by 2060, it won’t surpass China.

Monetary Policy

A link to the papers presented at the 2019 Kansas City Federal Reserve Economic Symposium at Jackson Hole, "Challenges for Monetary Policy".

MMT Discussion at Camp Kotok (Audio)
8/12/2019 Bianco Research

Struggle session over MMT led by the inestimable Jim Bianco at Camp Kotok in Maine this August. If you'd like to be confused at a higher level by Modern Monetary Theory, have a listen.

The fallacy of the natural rate of interest and zero lower bound economics: why negative interest rates may not remedy Keynesian unemployment
Thomas I. Palley 4/2019 Elgar Online

It’s about low demand for everything other than cheap money. Monetary policy that delivers ever lower interest rates cannot cure a fundamental lack of demand.

Robert Shiller says the Fed’s rate cut had the opposite intended effect, sparked recession alarm
Maggie Fitzgerald 8/20/2019 CNBC

"I think that there is a problem with cutting rates because it shows a sense of alarm," Nobel-winning economist Robert Shiller says.

U.S.

U.S. Infrastructure: 1929-2017
Ray C. Fair 8/7/2019 SSRN

US infrastructure increased steadily as a % of GDP until 1970, when it began to fall. This decline has continued and is unique to the United States. The author asks, did the US cease being future oriented then, and if so why?

U.S. to enter recession in two years, say a third of business economists
8/19/2019 Market Watch

Just a third of business economists believe a recession will happen by the end of 2021. But yield curve frenzy and a global growth showdown have set expectations sooner.

Say No to the “Cashless Future” — and to Cashless Stores
Jay Stanley 8/12/2019 ACLU

Forgotten in the rush to digital payments: financial privacy matters.

Generational clash emerges among U.S. experts in China policy debate
Ellen Nakashima August 17 Washington Post

Except for about 15 minutes, China watchers have never been a single unified group. 

Don’t Call It a Trade War
Irwin Stelzer the American Interest

Coming apart-are China and the US decoupling?

Obama-backed Film Offers a Sobering Take on US-China Rivalry
8/24/19 Bloomberg

Don't miss this Netflix documentary about a Chinese factory in Dayton, Ohio.

China


How Much Do State-Owned Enterprises Contribute to China’s GDP and Employment?
Chunlin Zhang 7/2019 World Bank

State-owned companies in China contribute about a quarter of its GPD. Which is one reason unemployment is growing and is unlikely to improve.

China’s Debt Hangover
8/20/2019 Macro Polo

With Hong Kong slipping into recession, will Guangdong move from the bottom of this list to the top? Taxes are collected centrally in China, but services are provided locally-which created this situation.

If we burn, you burn with us
Andy Browne 8/17/2019 Bloomberg

The best and worst case scenarios for Hong Kong.

Economist: Hong Kong’s tycoons ‘are the problem’ underlying recent unrest
Huileng Tan 8/14/2019 CNBC

Is housing inflation at the heart of Hong Kong protests?

Chinese investment in Europe slides 84% in H1
8/15/2019 China Daily

It's not just a 90% slowdown in the US. Chinese investment in Europe slides 84% in H1.

China’s Overseas Lending
8/16/2019 Kiel Working Paper

Chinese lending to the developing world is essentially policy lending. About half of these loans are unreported. David Malpass ⁦from World Bank is calling for greater transparency.

Low R&D Spending May Be China’s Achilles’ Heel
Shuli Ren 8/12/2019 Bloomberg

R&D spending impacts short-term profitability, key to public listings.

Smart home tech makes inroads into China's emerging elderly care market
Ryan Woo 8/8/2019 Reuters

By 2050, China's population over the age of 60 (478M) will exceed the entire population of the US (438M).