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Articles by [email protected] (TrueEconomics)

22/8/19: Irish Economy is Now Fully Captured by the Multinationals

1 day ago

Just as in the years prior, 2018 was another year of massive dominance of the foreign-owned multinational corporations in Irish official economic growth statistics. Per latest data from CSO (see the link below), in 2018, MNEs-dominated sectors of the Irish economy have contributed 5.6 percentage points to the overall growth in Gross Value Added in Ireland, against domestic sectors contribution of 2.3 percentage points. This marks an increase on 2017 growth contribution by MNEs (4 percentage points against domestic 2.9 percentage points), and 2016 figures (2.4 percentage points growth for MNEs against 2.3 percentage points for domestic).

Over the last 5 years, overall share of real Gross Value Added in the Irish economy accruing to the multinationals-dominated sectors has risen from

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20/8/19: Public Spending in the Euro Area: Post-Crisis Austerity?

3 days ago

Given the never-ending repetition of the ‘austerity narrative’ in European economic analysis, it is virtually impossible to conclusively address the issue of changes in public spending during the crisis and the post-crisis periods and the relationship between fiscal policies and economic growth. Thew reason for this is the lack of singular set metrics that can capture these dimensions of the debate.However, this lack should not be a reason for not trying.Here is an interesting chart (based on the IMF WEO data and 2019 forecasts), plotting average Government expenditure as a share of GDP for two periods for euro area economies. The two periods under consideration are: 2000-2007 and 2013-2019. I am also showing two metrics for Ireland: the GDP (a measure of economic activity that vastly

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19/8/19: Import Zamescheniye: Replacing Imports with Imports in the Age of Trade Wars

4 days ago

Trump trade wars have led to increasing evidence of substitution by Chinese exporters to the U.S. with exports via third countries and supply chain outsourcing from China to other destinations. While direct evidence of these trends is yet to be provided (data lags are substantial for detailed flows of goods across borders) and is never to be treated as fully conclusive (due to differences in trade goods designations), here is some macro-level snapshot of latest data on U.S. imports shares for selective countries:

The chart above shows that based on trends, U.S. imports arrivals from China are down in 2017-2019, and they are up, significantly for Vietnam and Taiwan, with less pronounced evidence of imports substitution from other Asia-Pacific countries.Given several caveats (listed

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18/8/19: Migration Policy vs the Law of Unintended Consequences

5 days ago

President Trump’s policies are a rich field for sowing evidence on the application of the law of unintended consequence in economic policies. Take his Trade War with China that so far resulted in ca USD20 billion in fiscal receipts and USD26 billion payouts in subsidies to U.S. farmers, netting a fiscal loss of USD 6 billion (https://trueeconomics.blogspot.com/2019/06/17619-lose-lose-and-lose-some-more.html), while generating gains for European exporters (https://trueeconomics.blogspot.com/2019/08/15819-winning-trade-wars-round-3.html) and shrinking net real exports for the U.S. economy (https://trueeconomics.blogspot.com/2019/08/1919-losin-spectacularly-trump-trade.html) and driving losses to the U.S. exporters

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16/8/19: Post-Millennials and the falling trust in institutions of coercion

8 days ago

A neat chart from Pew Research highlighting shifting demographics behind the changing trends in the U.S. public trust in core institutions:

Source: https://www.people-press.org/2019/07/22/how-americans-see-problems-of-trust/Overall, the generational shift is in the direction of younger GenZ putting more trust in scientists and academics, as well as journalists, compared to previous generations; and less trust in military, police, religious leaders and business leaders. Notably, elected officials have pretty much low trust across all three key demographics.

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16/8/19: U.S. Military Presence Worldwide

8 days ago

Generally, I do not find Politico to be a great source for geopolitical analysis and data, but here is one exception – a handy map of U.S. military bases, smaller deployment platforms and unconfirmed deployment platforms worldwide:

Thirty years after the end of the Cold War, one country remains completely and comprehensively surrounded by the U.S. military deployment platforms (and these exclude non-U.S. Nato platforms): Russia.The map does not show the U.S. navy and airforce reach zones, nor does it include Nato’s non-U.S. troops bases.Some ‘Peace Dividend’ this is, especially given the threat rhetoric from Washington. And any wonder, Russian geopolitical stance remains that of a country under the siege?Source for the

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15/8/19: Winning Trade Wars: Round 3

8 days ago

A couple of days ago, Germany’s info Institute published two scenarios estimating the impacts of the latest President Trump threats to China, the imposition of a 10% tariff on Chinese exports to the U.S.Per ifo’s Scenario 1: "If the US imposed 10 percent tariffs on additional imports worth USD 300 billion, this would mean additional income of EUR 94 million for Germany, EUR 129 million for France, EUR 183 million for Italy, EUR 25 million for Spain, and EUR 86 million for the United Kingdom. It would amount to EUR 1.5 billion for the EU28 and EUR 1.8 billion for the US. China would see losses of EUR 24.8 billion." Note: the U.S. ‘gains’ do not account for U.S. agricultural subsidies supports increases announced by the Trump Administration, but include estimated consumer impact.

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12/8/19: OECD Tax Plans: Some Bad News

11 days ago

My column for the Cayman Financial Review covering OECD latest tax reforms proposals: https://www.caymanfinancialreview.com/2019/08/02/oecd-led-tax-reforms-a-prescription-for-a-less-competitive-economy/

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10/8/19: Irish Debt Sustainability Miracle(s): ECB and MNCs

13 days ago

As a part of yesterday’s discussion about the successes of Irish economic policies since the end of the Eurozone crisis, I posted on Twitter a chart showing two pivotal years in the context of changing fortunes of Irish Government debt sustainability. Here is the chart:

The blue line is the difference between the general Government deficit and the primary Government deficit, which captures net cost of carrying Government debt, in percentages of GDP. In simple terms, ECB QE that started in 2015 has triggered a massive repricing of Eurozone and Irish government bond yields. In 2012-2014 debt costs remained the same through 2015-2019 period, Irish Government spending on debt servicing would have been in the region of EUR 49.98 billion in constant euros over that period. As it stands,

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8/8/19: Irish New Housing Markets Continue to Underperform

15 days ago

New stats for new dwelling completions in Ireland are out today and the reading press releases on the subject starts sounding like things are getting boomier. Year on year, single dwellings completions are up 15.5% in 2Q 2019, scheme units completions up 2.6%, apartments up 55.6% and all units numbers are up 11.8%. Happy times, as some would say. Alas, sayin ain’t doin. And there is a lot of the latter left ahead.Annualised (seasonally-adjusted) data suggests 2019 full year output will be around 18,000-18,050 units, which is below the unambitious (conservative) target of 25,000. And this adds to the already massive shortage of new completions over the last eleven years. Using data from CSO (2011-present), cumulated shortfall of new dwellings completions through December 2018 was

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8/8/19: Upbeat Jobs Reports Miss Some Real Points

16 days ago

Unemployment claims down, the weekly jobs report seemed to have triggered the usual litany of positive commentary in the business media

But all is not cheerful in the U.S. labor markets, once you start scratching below the surface. Here are two broader metrics of labor markets health: the civilian employment to population ratio and the labor force participation rate, based on monthly data through July:

The above shows thatCivilian labor force participation rate is running still below the levels last seen in the late 1970s, and the current recovery period average (close to the latests monthly running rate) is below any recovery period average since the second half 1970s recession end.
You have to go back to the mid-1980s to find comparable ‘expansion period’-consistent levels of

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6/8/19: El Paso and Dayton mark 2019 as the worst year for mass shooting violence in America on record

17 days ago

In the wake of the extremely sad events of the last two weeks, it took me some time to run through the data from the https://www.gunviolencearchive.org/ on mass shootings in the U.S. 2014-2019 (to-date), and the numbers are shocking. The El Paso, TX shooting of August 3, followed by the Dayton, OH incident on August 4  (with combined numbers of those killed or injured at 82 with 30 people dead, may they rest in peace) have shaken the world (see, for example, https://www.nytimes.com/2019/08/06/world/europe/mass-shooting-international-reaction.html). Here is a summary table on U.S. mass shootings over the last 5 years and 7 months:

So far, 2019 has been the deadliest year on record in terms of overall number of mass shooting incidents, in terms of the numbers of people killed and

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1/8/19: Wages vs GDP growth: when economic growth stops benefiting workers

22 days ago

I have posted earlier some data on the gap between real GDP and real disposable income per capita in the U.S. (see here: https://trueeconomics.blogspot.com/2019/08/1819-debasement-of-real-disposable.html) that evidences the longer-term nature of the ongoing debasement of real incomes in the repeated cycles of financialisation of the U.S. economy. Here is another view of the same subject matter:

Per chart above, consistent with my arguments in the case of disposable income, U.S. labor incomes have been sustaining ongoing deterioration relative to overall economic growth since at least the 1970s. In fact, the current expansionary cycle (yellow line) shows relatively benign speed of deterioration in real wages or labor income share of total real GDP, although the length of the cycle

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1/9/19: ‘Losin Spectacularly’: Trump Trade Wars and net exports

22 days ago

U.S. net exports of goods and services are in a tailspin and Trump Trade Wars have been anything but ‘winning’ for American exporters. You can read about the effects of Trade Wars on corporate revenues and earnings here: https://trueeconomics.blogspot.com/2019/07/31719-fed-rate-cut-wont-move-needle-on.html. And you can see the trends in net exports here:

This clearly shows that ‘Winning Bigly’ is really, materially, about ‘Losin Spectacularly’. Tremendous stuff!

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1/8/19: Debasement of Real Disposable Income share of GDP: Historical Trends

22 days ago

I have been crunching some data recently on the historical gap between real GDP growth and wages/income of households. Some of this work will be forthcoming in an article due later this month, so keep an eye out for it. Some of it is post-dating the article submission. Here is an example of the latter. The following chart plots index of real GDP from 1Q 1959 through 1Q 2019 against the index of real disposable income per capita. Both indices are set at 100 at 1959 average.

There are 5 distinct periods over which growth in real GDP moved further and further away from growth in real disposable income. All are associated with monetary accommodation periods post-recessions, and all are associated with increasing post-recession financialization of the U.S. economy and financial or real

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31/7/19: Fed rate cut won’t move the needle on ‘Losing Globally’ Trade Wars impacts

23 days ago

Dear investors, welcome to the Trump Trade Wars, where ‘winning bigly’ is really about ‘losing globally’:

As the chart above, via FactSet, indicates, companies in the S&P500 with global trading exposures are carrying the hefty cost of the Trump wars. In 2Q 2019, expected earnings for those S&P500 firms with more than 50% revenues exposure to global (ex-US markets) are expected to fall a massive 13.6 percent. Revenue declines for these companies are forecast at 2.4%.This is hardly surprising. U.S. companies trading abroad are facing the following headwinds:Trump tariffs on inputs into production are resulting in slower deflation in imports costs by the U.S. producers than for other economies (as indicated by this

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31/7/19: Canary in the Treasuries mine

24 days ago

Judging by U.S. Treasuries, things are getting pretty ugly in the economy:

The gap between long-dated bond yields and short-dated paper yields has accurately predicted/led the last three recessions (the latter are marked by red averages in the chart).

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27/7/19: A Cautionary Tale of Irish-UK Trade Numbers

27 days ago

Per recent discussion on Twitter, I decided to post some summary stats on changes in Irish total trade with the UK in recent years.Here is the summary of period-averages for 2003-2017 data (note: pre-2003 data does not provide the same quality of coverage for Services trade and is harder to compare to more modern data vintage).

So, overall, across three periods (pre-Great Recession, 2003-2008), during the Great Recession (2009-2013) and in the current recovery period (2014-2017, with a caveat that annual data is only available through 2017 for all series), we have:UK share of total exports and imports by Ireland in merchandise trade has fallen from an average annual share of 23.31 percent in pre-Great Recession period, to 18.06 percent in the post-crisis recovery period.
However, this

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26/7/19: Stop Equating Low Unemployment Rate to High Employment Rate

28 days ago

There is always a lot of excitement around the unemployment stats these days. Why, with near-historical lows, and the talk about ‘full employment’, there is much to be celebrated and traded on in the non-farm payrolls stats and Labor Department press releases. But the problem with all the hoopla around these numbers is that it too often mixes together things that should not be mixed together. Like, say, mangos and frogs, or apples and moths.Take a look at the following data:

Yes, unemployment is low. Civilian unemployment rate is currently at seasonally-adjusted 3.7% (June 2019), and Unemployment rate for: 20 years and over, at 3.3%, seasonally adjusted. On 3mo average basis, last time we have seen comparable levels of Civilian unemployment was in 1969, and 20+ Unemployment rate was

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22/7/19: What Import Price Indices Do Not Say About Trump’s Trade War

July 23, 2019

A few days ago, I saw on Twitter some economics commentators, not quite analysts, presenting the following ‘evidence’ that Trump tariffs are being paid for by China: the U.S Import Price index has declined in recent months, to below 100. In the view of some commentators, this signifies the fact that the U.S. is now paying less for imports from the ret of the world because Chinese producers are taking a hit on tariffs imposed onto their goods by the Trump Administration and do not pass through these tariffs onto the U.S. consumers.The argument is a total hogwash. For a number of reasons.Firstly, as the U.S. Bureau of Labor Statistics notes (see https://www.bls.gov/mxp/ippfaq.htm), import price indices do not incorporate tariffs and duties charged at the border. They actually explicitly

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17/9/19: Flight from Fundamentals is Flight from Quality: Corporate Risk

July 17, 2019

Great chart via @jessefelder highlighting the extent to which the bond markets are getting seriously divorced from the normal ‘fundamentals’ of corporate finance:

Source: https://twitter.com/jessefelder/status/1151586992033083393?s=20

Corporate debt has expanded at roughly x2 the rate of growth of corporate earnings since the start of this decade. And corporate bond yields are persistently heading South (see: https://trueeconomics.blogspot.com/2019/07/16719-corporate-yields-are-heading.html) and investment for growth is falling (see: https://trueeconomics.blogspot.com/2019/07/7719-investment-for-growth-is-at-record.html). Which continues to put more and more pressure on corporate valuations. As a friend recently remarked, at 2% interest rates, the game will be over. It might be

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16/7/19: Corporate Yields are Heading South in the Euro Land

July 16, 2019

Some of the euro area’s junk-rated corporate debt is now trading at negative yields, and over 15% of near-junk debt is also charging the lenders to provide cash to financially weaker companies:

Source: WSJ
While the overall stock of negative yielding debt (sovereign and corporate) is now nearing $13.5 trillion worldwide:

Source: Bloomberg
All in 51 percent of all European Government bonds are trading at negative yields, and just over 30 percent of all investment grade corporate bond issued in Euro.The percentage of negative yielding debt amongst junk-rated corporates is small. Bank of America ML estimated that the percentage of BB-rated European corporate bonds with negative yield rose from 0.225% at the end of May to 1.5% at the end of June. Back then, 14 companies had junk-rated

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16/7/19: Monetary Policy Paradigm: To Cut or To Cut, and Not to Not Cut

July 16, 2019

QE is back… almost. After a decade plus of failing to deliver on its core objectives, and having primed the massive bubble in risky assets, while pumping sky high wealth inequality through massive monetary transfers to the established Wall Street elites… all while denying that we are in an ongoing secular stagnation. So, courtesy of the unpredictable, erratic and highly uneven economic parameters performance of the last 12 months, we now have this:

Because, for all the obvious reasons, doing more of the same and expecting a different result is the wisdom of the policymaking in the 21st century.

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13/7/19: A New Era of Entrepreneurship? Not in Data so Far…

July 13, 2019

We are living in the Great New Era of Entrepreneurship that started in 2013 (according to someone at Forbes) and the academia is pumping high entrepreneurship training and education (the Golden Era, according to some don from Stanford). Living in all of this ‘game changing’ stuff around you can be daunting, inducing FOMO and other behavioural nudges toward dropping everything and launching that new unicorn doing something disruptive and raking in the miracle dollars that everyone around you seems to be minting out of thin air. Right?Well, not so fast. Here’s the data from the U.S. – that ‘super-charged engine of enterprising folks’:

Hmm… anyone can spot the ‘New Era’ in entrepreneurship out there, other than the one with historically low rates of business creation?

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13/7/19: Mapping the declines in jobs creation

July 13, 2019

Increasing market power concentration, falling entrepreneurship, rising concentration amongst the start ups, unicorns and billions in investment, the markets have been rewarding larger companies at the expense of the smaller and medium enterprises for years. And this has had a problematic impact on human capital and jobs creation.Here is the data on the levels of employment in medium-large companies over the years, based on the U.S. markets data:

In simple terms, per each dollar of investors’ money, today’s companies are creating fewer jobs – a trend that was present since at least 2000, and consistent with the onset of the Goldilocks Economy. But the most pronounced collapse in jobs creation from investment has been since 2017. Excluding recessionary periods, in 2002-2006 average

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13/7/19: BRICS and G7

July 13, 2019

As a side note: the BRICS now have a bigger share of the world economy than the Euro area and the U.S. combined:

In 2019, BRICS combined GDP will surpass (using PPP-adjusted GDP) that of G7 economies, and in 2020, based on IMF forecasts, it will exceed the combined share of the world GDP for the US + EU27 economies.Not a single BRICS economy is currently represented in G7. Dire…

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13/7/19: BRICS Current Account Surpluses: Its Russia and China Story

July 13, 2019

China and Russia dominate BRICS’ current account dynamics and this is not about to change.

Both China and Russia have been posting strong current account figures in recent years, and this is not changing with the onset of the Russia sanctions in 2014 and the Trump Trade Wars in 2018. The two economies clearly dominate the emerging markets’ current account dynamics in terms of both the sign of the balances (surpluses) and their magnitudes.The caveat for Russia is that its current account gains are coming in at the time of relative weakness in its exports and net capital outflows:

Meanwhile, per latest data, U.S. trade deficit with China has widened once again as Chinese exports to the U.S. contracted by ca 7.8 percent y/y, while U.S. exports to China fell 31.4 percent. Which means

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13/7/19: Russian v European Dependency Ratios: 1950-2100

July 13, 2019

Doing some numbers crunching on a different project, I just came across this interesting database from the UN showing population projections through 2100. One interesting aspect of this data is the forecasts/projections for the dependency ratio – basically, a number of working age population per 100 people of non-working age.There are caveats attached to the analysis of this data, including the changes in the duration of the working age (over the years, younger age dependency has moved toward 24 years from 19 years due to extended period spent in education, while for older age dependency, the mark has been moving from 64 years to 69 years as the last year in working age group). These caveats aside, here is a really eye-opening chart:

We consistently hear about the demographic

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