Submitted by Michael Every of Rabobank
* I * can, you can not (illon)
US bill imposes obligatory sanctions against Chinese individuals and legal entities that “make a significant contribution in violation of China’s obligations”To Hong Kong Autonomy – and banks that make “significant transactions” with them what we learned yesterday was postponed, and has just been unanimously adopted by the Senate. The House of Representatives is working on its own version; it is consistent with this bill; the final bill is handed over to President Trump, who either signs it or vetoes him – in any case, he has the right to veto. This is a constitutional dynamic that has been described several times in the past 12 months for bills targeted at China, with serious consequences not only for international relations, but also for international business and finance. So far, the results have not hit the markets: but this bill excludes intermediaries and leads us to harsh sanctions.
Of course, this does not matter for the markets at the moment. Just like Texas and Florida do not pause to reopen as viral cases grow. The Fed also does not inform US banks that it expects from them bad loans worth $ 700 billion. USA, and directs them to limit dividends and suspend repurchase until the end of the third quarter. (Yes, this is the Fed, not the NBK, which has already ordered similar measures.) Bloomberg tells me that stocks are rising because more incentives are now expected, as the US reopening has stalled. Bad news is good news – and good news, of course, good news.
This dynamics is well known to regular readers. Less well known is Richard Cantillon (1680–1734), an Irish-French economist. This is no coincidence, as economists do not teach any economic history. Moreover, the ideas of Cantillon are so piercingly relevant that it is more convenient for them not to teach. He was a mercantilist and bequeathed to us The Cantillon Effectwhich, like all the best theories, is very simple: when money is printed, those who are closer to them in the institutional structure receive cream, and those who are far away receive nothing, You can dress it in economic terminology as differentiated inflation rates as the money supply increases, but the basic idea is this:Good to be king“In those days or today”* I * Can, You Can’t (illon)“
Is it any wonder that asset prices are rising at a time of massive unemployment? Not! As money goes beyond our institutional structure, some are ahead of the line, others behind. (And some are outside in the rain.) Our true “solutions” are our problems.
That the governor of the Bank of England just stated that the UK government nearly went bankrupt in March when his job is to never happen pure cantillon. These are excerpts from two recent articles below, both of which are sadly true:
- The New York Times: “The Work We Need”
If income had not lagged behind overall economic growth since 1970, Americans in the bottom 90% of the income distribution would receive an average of an additional $ 12,000 per year. In fact, every American worker in the bottom 90% of the income distribution sends an annual check for $ 12,000 to a richer person in the top 10%.
- Luke: “The study reveals a widening gap between rich pets and poor Americans”
“Since the 1970s, economic growth has slowed for all but a tiny fraction of Americans and their pets, so not only the vast majority of luxury goods are much more affordable for these purebred dogs, cats and chinchillas than for the average person rich in pets a luxurious lifestyle that many US citizens could only dream of. ” The report concluded that the pet of a wealthy family was becoming the most viable way to prosper for poor Americans. [NB That conclusion is not too far away from former Fed Chair Yellen’s thesis that if only poor people had more assets they would be less poor.]
Of course, we can admit that the Cantillon effect exists, but it does not adversely affect the economy. For example, if institutional money goes to infrastructure and industrial commercialism, it promotes growth – as we see today in China. However, this is still a half-life paradigm if market forces also do not determine where the funds go, or if China cannot continue to find new foreign markets in order to absorb its constant surplus. Which brings us back to the Hong Kong US Liability Act: try selling more goods when not only are tariffs increasing, but your banks are also under US sanction.
Another problem we face is when the Cantillon effect raises some boats much more than others. This is the territory of Picketti and Marx: it is not surprising that we hear accusations of “Marxists!” aligns today?
The situation gets even worse when Cantillon moves away something productiveand does not (re) distribute profits to where it does nothing, I mean recent UK government projects that are absorbing funds but not producing high-speed railways or COVID-19 contact tracking applications. Is it just bureaucratic incompetence, or is it the Cantillon effect? Someone is still getting all this money. As one talk show host in the United Kingdom joked yesterday, why the government cannot pay him millions NOT Create a contact tracking application, so how much cheaper? Perhaps in his joke there is no real (political) point – not only in the UK, but also in a number of countries, including the USA.
Meanwhile, another key real politician, the United States, is driving China into a corner and saying, “I * can, you cannot,” continues to act. This is the latest Hong Kong bill and Wall Street Journal reports. The US is considering the possibility of involving the federal government in 5G, perhaps even “convincing” key US firms to buy key European competitors, to ensure that there is a “non-China” rival on alert for Huawei. It is unlikely that Beijing will see a good answer.
Similarly, Berlin will not respond well if the US also pushes Germany and into the corner, trying to kill the Nord Stream 2 pipeline with the help of the sanctions that, according to Bloomberg, are now expected and for what measures are the EU preparing for a response – for example, the withdrawal of German troops that protect US territory?
Institutional Structure *really* liquidity support will have to be strengthened so that markets smile, if so. In fact, such double shocks would require so much “institutional structural support” that much more people would ask: “Why can’t we get some of this good?”