Has Austerity Been Vindicated? - Skidelsky (PS)

https://www.project-syndicate.org/commentary/budget-deficits-austerity-growth-alesina-keynes-by-robert-skidelsky-2019-05?utm_source=Project+Syndicate+Newsletter&utm_campaign=05153ce5b9-sunday_newsletter_26_5_2019&utm_medium=email&utm_term=0_73bad5b7d8-05153ce5b9-93854061&mc_cid=05153ce5b9&mc_eid=be3809ebbc



Alesina’s theory rests on two conceptual pillars. The main one is that if deficits persist, businesses and consumers will expect higher taxes and will therefore invest and consume less. Spending cuts, on the other hand, signal lower taxes in the future, and thus stimulate investment and consumption.

The second, supplementary pillar is the assumption that rising public debt leads investors to expect a default. This expectation forces up interest rates on government bonds, leading to higher overall borrowing costs. Austerity, by stopping the growth of debt, can bring about a “sizeable reduction” in interest rates, and thus enable increased investment.

...Keynes says an announced reduction in public spending signals to business people that their incomes will be reduced because fewer people will be buying the goods and services they produce. But Alesina says that an announced reduction in public spending signals to business people that they can expect lower taxes tomorrow, and therefore will spend more today.

Readers must decide which theory they find more plausible.

The Global Consequences of a Sino-American Cold War - Roubini (PS)

https://www.project-syndicate.org/commentary/united-states-china-cold-war-deglobalization-by-nouriel-roubini-2019-05?utm_source=Project+Syndicate+Newsletter&utm_campaign=05153ce5b9-sunday_newsletter_26_5_2019&utm_medium=email&utm_term=0_73bad5b7d8-05153ce5b9-93854061&mc_cid=05153ce5b9&mc_eid=be3809ebbc

...Destined for War: Can America and China Escape Thucydides’s Trap?, Harvard University’s Graham Allison examines 16 earlier rivalries between an emerging and an established power, and finds that 12 of them led to war. No doubt, Xi wanted us to focus on the remaining four....

...The US blames China for the current tensions. Since joining the World Trade Organization in 2001, China has reaped the benefits of the global trading and investment system, while failing to meet its obligations and free riding on its rules. According to the US, China has gained an unfair advantage through intellectual-property theft, forced technology transfers, subsidies for domestic firms, and other instruments of state capitalism. At the same time, its government is becoming increasingly authoritarian, transforming China into an Orwellian surveillance state

...A full-scale cold war thus could trigger a new stage of de-globalization, or at least a division of the global economy into two incompatible economic blocs. In either scenario, trade in goods, services, capital, labor, technology, and data would be severely restricted, and the digital realm would become a “splinternet,” wherein Western and Chinese nodes would not connect to one another. Now that the US has imposed sanctions on ZTE and Huawei, China will be scrambling to ensure that its tech giants can source essential inputs domestically, or at least from friendly trade partners

...Whatever happens, the Sino-American relationship will be the key geopolitical issue of this century. Some degree of rivalry is inevitable. But, ideally, both sides would manage it constructively, allowing for cooperation on some issues and healthy competition on others. In effect, China and the US would create a new international order, based on the recognition that the (inevitably) rising new power should be granted a role in shaping global rules and institutions.

How Inflation Could Return - El Erian (PS)

https://www.project-syndicate.org/commentary/how-inflation-could-return-by-mohamed-a-el-erian-2019-05?utm_source=Project+Syndicate+Newsletter&utm_campaign=05153ce5b9-sunday_newsletter_26_5_2019&utm_medium=email&utm_term=0_73bad5b7d8-05153ce5b9-93854061&mc_cid=05153ce5b9&mc_eid=be3809ebbc



...interest rates may be causing resource misallocations and undercutting long-term financial security for households, elevated asset prices have heightened the risk of future financial instability....


...what if...in the middle of a multi-stage process in which strong disinflationary supply-side forces eventually give way to the return of higher inflation?


...Owing to the persistence of low inflation, monetary policies have remained ultra-loose for an unusually long time, raising concerns that the US or Europe may succumb to “Japanification” as consumers postpone purchases and companies reduce investment outlays. So far, that risk has led to protractedly low or negative (in the case of the European Central Bank) policy rates and bloated central-bank balance sheets, despite the potentially deleterious effects of such policies on the integrity of the financial system.


...these structural forces the Amazon/Google/Uber effect. While the Amazon model pushes down prices by allowing consumers to bypass more expensive intermediaries, Google undercuts companies’ pricing power by reducing search costs, and Uber brings existing assets into the marketplace, further eroding established firms’ pricing power.


...more low-cost production online and reducing the power of organized labor....inflationary influences....the slack in the labor market is diminishing every month, and increased industrial concentration is giving some companies, especially in the technology sector, far greater pricing power.


...growing political pressure on central banks to bypass the asset channel (that is, QE bond purchases) and inject liquidity directly into the economy.


... tariffs and other trade measures is risking a fragmentation of global economic and financial relationships, favoring higher prices, and compelling a greater degree of more costly self-insurance by companies and consumers. 

Thoughts from the Frontline - Why Debt Won't Spark Inflation - btbirkett@gmail.com - Gmail

https://www.mauldineconomics.com/frontlinethoughts/why-debt-wont-spark-inflation



...Lacy showed how, in a world of falling monetary velocity, the amount of GDP growth produced by each additional dollar of debt fell 24% in the last 20 years. That’s why we have so much more debt now and yet slower growth....



...

bb. Two issues: (1) if interest rates are low, then the velocity of money is low because it doesn't earn much; (2) what if GDP isn't being measured correctly - and/or we are investing with new products and such disruption, that GDP (assets, goods and services, cycle out-of-use with quick replacement?   NOT ALL IS AS SIMPLE OR OBVIOUS as it may seem.

Thought experiment: If Italy were to remove itself from the euro and reissue the lira, does anybody really think that Italy would keep today’s low rates? Ditto for Greece and other countries. Left on their own, these currencies would devalue relative to stronger ones like Germany, and their interest rates would rise.

This is not necessarily a bad thing. The “safety valves” of currency devaluation and bond market vigilantes saved Italy numerous times before it joined the euro. What most people don’t realize is that Italy grew faster than Germany in real terms for the 20–30 years prior to joining the euro, despite its inflation and devaluations.

Russia's Dirty Oil Crisis Is Worse Than Anyone Predicted - Bloomberg

Russia's Dirty Oil Crisis Is Worse Than Anyone Predicted - Bloomberg

The contamination with organic chlorides, which is very unusual, comes at a time when the global oil market is already short of supply of crude of similar quality to Urals. The combined impact of U.S. sanctions on Iran and Venezuela, OPEC+ production cuts, and lower-than-expected output in Mexico has reduced worldwide shipments of denser crude with high sulfur content. Premiums in the physical market for medium-heavy crude have surged to multi-year highs as a result. 

“This is a significant unplanned outage that is having spill-over effects,” said Harry Tchilinguirian, head commodity strategist at BNP Paribas SA. “What you end up with is a further reduction in the availability of medium quality crude oil.”

Is Anyone Actually Investing in Opportunity Zone Funds? | Institutional Investor

Is Anyone Actually Investing in Opportunity Zone Funds? | Institutional Investor



...If an investor holds the gains in an opportunity zone fund for five years, they can exclude 10 percent of those gains from taxation. If they hold them for another two years (for a total of seven), they can exclude another five percent from taxation — meaning that taxpayers can exclude up to 15 percent of the value of reinvested capital gains from their taxable income, Eastman said. 

Finally, any gains achieved after the investment is made in an opportunity zone fund are tax-free, if the investment is held for at least ten years.

...“It's the only part of the tax code where you get to fully write off your capital gains taxes.” 

“Investors in real estate opportunity zone funds projects should expect mid-teen returns and 6 to 10 percent cash-on-cash distributions after stabilization,” said Quinn Palomino, principal at Virtua Partners, via email. She added that returns would be lower for social impact funds and higher for single-asset funds. 

��Long Zillow. Short Real Estate Agents?��

��Long Zillow. Short Real Estate Agents?��

he laid out their three to five year targets (goals).

• Purchase 5,000 homes per month through Zillow Offers. Generating revenue of approximately $20 billion. In 2018, they purchased 686 homes through Zillow Offers, generating $52 million in revenue.
• Originate 3,000 loans per month. Up from 4,000 originations in all of 2018.
• ----
• As mentioned earlier, Zillow believes that consumers expect magic to happen at the push of a button. Let’s go ten years into the future and see what that might look like…
  …One rainy day, Mr. Prescott is sitting at his computer, and he gets a notification from Zillow.
  😲Surprise! The house he looked at seven times on their app, has just become part of Zillow’s inventory.
  Since he bought his current house from Zillow (Zillow Offers), they know exactly how much he paid. In addition, they financed his current house (Zillow Mortgage), so they know exactly how much he can afford.
  Note: He wasn’t thinking about moving, just likes looking at houses, as do millions of Americans.
  Their email says something like this:
  Mr. Prescott,
  We noticed you have looked at this house on 523 Elm St. seven times over the past month. Great news! This house just became part of our inventory😁
  We are prepared to offer you $275,000 for you current house.
  We will sell you 523 Elm St. for $315,000.
  Since you have $100,000 of equity in your current house (they know this because they financed it), we are prepared to offer you a 15-year mortgage for $215,000 at a 3.5% interest rate.
  Your TOTAL out-of-pocket expenses for this transaction will be $4,300 (people like certainty; moving will $100 dollar you to death).
  In addition, here are three dates we can move you out of your current house, and into your new house.
  Attached are some repairs we think this house will need and what they will cost. If you choose to go forward with any of them, we will proceed with the repairs, and the costs will be rolled into your mortgage at no additional out-of-pocket cash for you.
  This offer will expire in 72 hours.
  Again, your total OUT-OF-POCKET cash, should you accept this offer, will be $4,300 dollars. And not a penny more.
  If you would like proceed, just click “Accept this Offer” and one of our agents will be in touch with you shortly…
  Cordially,
  Future Zillow😉