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Posts Tagged ‘OECD’

The Recovery Is Stalling. We Need Pro-Market Reforms Now. | Mises Wire

Posted by M. C. on October 16, 2020

Government shutdowns have created a solvency problem with severe long-term ramifications in large parts of the business fabric. One in five companies in the UK are considered “zombies,” almost 12 percent in the United States, and more than 15 percent in the eurozone.

https://mises.org/wire/recovery-stalling-we-need-pro-market-reforms-now?utm_source=Mises+Institute+Subscriptions&utm_campaign=1bc93c725e-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-1bc93c725e-228343965

Daniel Lacalle

The Economic Sentiment Index of the European Commission for August shows that the recovery of the European economy is slowing down. Not only has the pace of recovery slowed significantly, but the data for Spain reflected evidence of being the only economy in the euro area where the index fell compared to July. If we look at the Organisation of Economic Co-operation and Development (OECD) leading indicator index, the evolution is also worrying. 60 Bloomberg also tracks the daily activity in most economies, and the evidence points to a deceleration in August in most developed and emerging economies. Only the United States seems moderately better in comparison, although the slowdown in the recovery process is also evident.

Many may say that it is normal to see a deceleration in the recovery after such a fast bounce in June and July, but when most economies’ outputs remain 10 to 20 percent below February levels after the reopening, we must be concerned. We also must warn about a rapid recovery in GDP (gross domestic product) that comes mostly from massive increases in debt and government spending. The reality is that for most businesses and households the economy remains far away from 2019 levels.

Why Such a Rapid Change in Trend?

The first and wrong analysis is usually to blame the slowdown on a bad tourist season affecting the travel and leisure sector. Of course, it is an important factor, but many other parts of the economy are showing an abrupt change in trend. Furthermore, the worsening of the indicators is clearly reflected in industry and consumer confidence, with manufacturing purchasing managers’ indexes (PMIs) slowing down in the eurozone and even entering contraction in Spain.

The forced closure of the economy by government decision and the lack of confidence in the future have a profound midterm impact on the economy.

Government shutdowns have created a solvency problem with severe long-term ramifications in large parts of the business fabric. One in five companies in the UK are considered “zombies,” almost 12 percent in the United States, and more than 15 percent in the eurozone. The Bank of Spain warns that 25 percent of Spanish companies are in a situation of technical bankruptcy and business closure.

Governments have ignored the fragility of the private sector for years, while corporate debt and solvency ratios reached new record highs. However, what is more important is that governments have not paid any attention to the weakness of the small business fabric, millions of companies with one or two employees that managed to survive day by day, that had no debt or assets and have been destroyed by the misguided and ineffective forced shutdown, not because their owners used the wrong strategies.

The excess of capacity built in the fake and indebted growth period of 2017–19 is also evident in the weak recovery. Small businesses’ death by working capital and so-called strategic sectors’ zombification through low rates and high liquidity are the collateral damage of the eternal stimulus we have seen in the post-2008 period, particularly in the European Union, where large conglomerates are viewed by governments as hidden social security systems and behave almost like state-owned enterprises in numerous cases. The August composite manufacturing index in the eurozone shows this slack. It worsened from 54.9 in July to 51.6 in August. Still expanding, but a massive slump for one month. Following the daily activity indices published by Bloomberg Economics, economic activity in the euro area is still 10 percent below February levels, and recovery slows after reopening.

The main problem is that all this occurs in the middle of the largest chain of stimuli since the creation of the eurozone. The balance sheet of the European Central Bank has soared from 39 percent of the GDP of the eurozone at the beginning of the year to 55 percent in August 2020, much larger than the balance sheet of the Federal Reserve (33 percent of US GDP) or of the Bank of England (32 percent), though still far from the monetary insanity of the Bank of Japan (120 percent). Negative interest rates, a European Central Bank that has bought more than 20 percent of the outstanding debt of most member countries, liquidity injections into the financial system via targeted longer-term refinancing operations (TLTROs), and a fiscal stimulus of almost 10 percent of GDP, yet the eurozone economy is not even close to February levels.

These stimuli do not solve a problem of solvency and falling sales. Most businesses that are closing are not doing so due to lack of access to credit or because interest rates are high (they are the opposite), or due to lack of public spending. They close because sales after reopening are nowhere near the levels needed to cover growing expenses and tax bills. Death by working capital, as I mentioned previously.

Europe and the rest of the world must learn that huge stimulus can disguise the risk of highly indebted countries with serious solvency problems but it does not solve it.

At some point we must begin to understand that periods like the current one are precisely the most dangerous. With the excuse of attending to a crisis, structural imbalances are increased while the productive sector is left abandoned.

When we read about the “support for businesses” in these stimulus packages the majority are just giving companies the opportunity to borrow more now to pay taxes in the future.

This chain of stimuli and government spending will not strengthen the economy. At best, it will zombify sectors that already had growth, productivity, and debt problems before the pandemic. There is some hope, however. Countries like France are recognizing for the first time that the measures they must take if they want to get out of this crisis are reforms that free the economy. These include serious tax-wedge and administrative reforms that attract investment, employment, and improve competitiveness. There must also be reductions of the tax burden on productive sectors, elimination of bureaucratic obstacles, reduction of so-called social charges and hiring costs, lifting of useless regulatory restrictions, incentivization of high-productivity sectors instead of subsidization of low-productivity ones, etc.

Structural reforms are urgent, but the eurozone and Japan have shifted from using monetary policy to buy time to implement those structural reforms to using such monetary stimulus as an excuse not to implement them.

Most developed economies face a dangerous dilemma: choose to follow the path of debt stagnation or strengthen the economy to exit the crisis in a stronger way. Unfortunately, the first alternative benefits a political sector that refuses to adjust, although in the medium term it destroys it by making debt and deficits unsustainable. Author:

Daniel Lacalle

Daniel Lacalle, PhD, economist and fund manager, is the author of the bestselling books Freedom or Equality (2020),Escape from the Central Bank Trap (2017), The Energy World Is Flat (2015), and Life in the Financial Markets (2014).

He is a professor of global economy at IE Business School in Madrid.

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Sweden’s Coronavirus Strategy Will Soon Be the World’s | Foreign Affairs

Posted by M. C. on May 12, 2020

https://www.foreignaffairs.com/articles/sweden/2020-05-12/swedens-coronavirus-strategy-will-soon-be-worlds

By

China placed 50 million people under quarantine in Wuhan Province in January. Since then, many liberal democracies have taken aggressive authoritarian measures of their own to fight the novel coronavirus. By mid-March, almost all Organization for Economic Cooperation and Development (OECD) countries had implemented some combination of school, university, workplace, and public transportation closures; restrictions on public events; and limits on domestic and international travel. One country, however, stands out as an exception in the West.

Rather than declare a lockdown or a state of emergency, Sweden asked its citizens to practice social distancing on a mostly voluntary basis. Swedish authorities imposed some restrictions designed to flatten the curve: no public gatherings of more than 50 people, no bar service, distance learning in high schools and universities, and so on. But they eschewed harsh controls, fines, and policing. Swedes have changed their behavior, but not as profoundly as the citizens of other Western democracies. Many restaurants remain open, although they are lightly trafficked; young children are still in school. And in contrast to neighboring Norway (and some Asian countries), Sweden has not introduced location-tracing technologies or apps, thus avoiding threats to privacy and personal autonomy.

Swedish authorities have not officially declared a goal of reaching herd immunity, which most scientists believe is achieved when more than 60 percent of the population has had the virus. But augmenting immunity is no doubt part of the government’s broader strategy—or at least a likely consequence of keeping schools, restaurants, and most businesses open. Anders Tegnell, the chief epidemiologist at Sweden’s Public Health Agency, has projected that the city of Stockholm could reach herd immunity as early as this month. Based on updated behavioral assumptions (social-distancing norms are changing how Swedes behave), the Stockholm University mathematician Tom Britton has calculated that 40 percent immunity in the capital could be enough to stop the virus’s spread there and that this could happen by mid-June.

Sweden has won praise in some quarters for preserving at least some semblance of economic normalcy and keeping its per capita death rate lower than those of Belgium, France, Italy, the Netherlands, Spain, and the United Kingdom. But it has come in for criticism in other quarters for exceeding the per capita death rates of other Nordic countries and in particular, for failing to protect its elderly and immigrant populations. People receiving nursing and elder-care services account for upward of 50 percent of COVID-19 deaths in Sweden, according to Tegnell, in part because many facilities were grievously slow to implement basic protective measures such as mask wearing. Immigrants have also suffered disproportionately, mainly because they are poorer on average and tend to work in the service sector, where working remotely is usually impossible. But Swedish authorities have argued that the country’s higher death rate will appear comparatively lower in hindsight. Efforts to contain the virus are doomed to fail in many countries, and a large percentage of people will be infected in the end. When much of the world experiences a deadly second wave, Sweden will have the worst of the pandemic behind it….

The rest here

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Central Bankers Have Declared War on Your Savings | Mises Wire

Posted by M. C. on December 2, 2019

Recently, European Central Bank (ECB) President Christine Lagarde bemoaned their surpluses, complaining that they would be better off spending the money on infrastructure and education. Desperate for a modicum of growth, Lagarde is of the philosophy that the only way to grow an economy is through government intervention.

https://mises.org/wire/central-bankers-have-declared-war-your-savings?utm_source=Mises+Institute+Subscriptions&utm_campaign=adfd4f6c6d-EMAIL_CAMPAIGN_9_21_2018_9_59_COPY_01&utm_medium=email&utm_term=0_8b52b2e1c0-adfd4f6c6d-228343965

…Lagarde is a proponent of the NIRPs , championing the unconventional mechanism to achieve growth. Since the eurozone has barely cracked 2% GDP, many are anticipating that Lagarde will deepen negative rates during her term as president. Anytime she has mused on the subject, Lagarde has usually dismissed concerns about the saver, noting that they are also consumers, borrowers, and workers.

Unfortunately, this contempt for savers is commonplace because it is antithetical to the Keynesian approach of spending. Disciples of John Maynard Keynes will contend that consumption over saving should only happen during the bust phase of the business cycle, but if you peruse any opinion pieces by individuals subscribing to this ideology, you will only come across spending prescriptions for every type of economy – boom or bust. They dismiss the fact that capital accumulation, not consumption, creates wealth.

This myth originates from Keynes’ The General Theory and Treatise on Money, in which he posits that a saver is reducing the income of another person because he or she is not consuming the goods or services extended by somebody else. Put simply, he considered saving a self-defeating act.

“Saving is the act of the individual consumer and consists in the negative act of refraining from spending the whole of his current income on consumption,” he wrote.

The crusade against savers has been prevalent in the Democratic primary. The likes of Sen. Elizabeth Warren (D-MA) and Sen. Bernie Sanders (I-VT) have grieved about hoarders , particularly those who are the top 0.1% (no longer just the 1% anymore; likely because these two people are the 1%, too). The presidential candidates are perturbed that the supposed capital hoarders are not putting their fortunes into the economy. This is nonsense talk to justify their wealth confiscation policies, since the affluent are saving and investing, not just stuffing their money under mattresses.

Negative rates, higher taxes, and inflation – the statists are employing every measure to gain access to the fruits of your labor…

If you don’t like it, then you are out of luck. You have nowhere to go. The globalists have declared war on mom and pop savers, pillaging bank accounts and conquering our lives. Is there a chance for victory? As long as the omnipotent and iniquitous institutions remain in charge, optimism over sound economics can only fade to black.

Originally published by Liberty Nation.

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Younger Generation Will Probably End Up Poorer Than Their ...

 

 

 

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Corporate Executives Try to Assess Potential Impact of Tax Change Proposals

Posted by M. C. on November 26, 2019

A global tax. How many tens of thousands of pages of regulation do you suppose that will generate.

Every page dripping with fairness. The end result will be our bleeding.

Corporations don’t pay taxes, they collect them.

Consumer facing-means the military-industrial-government-bankster complex conveniently will not be burdened.

When you hear a politician say “the corporation pays the tax, the citizen will never feel it” you know this person is totally ignorant, lying scum or more likely both.

https://www.wsj.com/articles/corporate-executives-try-to-assess-potential-impact-of-tax-change-proposals-11574312460

Corporate tax chiefs are trying to assess the potential implications of a proposal for a new global tax system for consumer-facing businesses, an effort that is being complicated by what some companies describe as a lack of critical details.

The Organization for Economic Cooperation and Development, which is running the initiative, was scheduled to meet Thursday and Friday in Paris to discuss a proposal that would set a standard tax rate for a company’s global operations and allow individual governments to tax profits above that based on sales accounted for by each country.

The new rules would represent a departure from current regulations that look at where companies are based and where they hold patents and brands.

Dubbed the “unified approach,” the rules would apply to companies with annual revenues of more than €750 million ($830 million) in consumer-facing industries, a broad term that includes technology companies—which have been in the spotlight for their tax practices—and other firms selling services and goods to consumers…

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Global Warming Alarmists Chant ‘Forget The Carbon, We ...

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