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Wednesday, July 13, 2016

Some Wednesday evening news


God damn, a whole day of doing calculus homework.

Let's wind down with some news:


WSJ RTE - foreign investment in the US soars - because of a tax loophole. The useful puppets of the kleptocracy at WSJ couch that with a "partly", but you know I'm no puppet:
Expenditures by foreign investors to acquire, establish or expand U.S. businesses reached $420.7 billion in 2015, a 68% jump from the prior year, the Commerce Department’s Bureau of Economic Analysis said in a report out Wednesday.

But the figures were distorted by corporate inversions—the process through which a U.S. company takes a foreign address, typically via a merger with a smaller firm, to lower its tax bill.

Underscoring the the impact of inversions, relatively tiny Ireland ranked as the top source of new direct investment last year at $176.5 billion.
This is a big fucking deal from an international trade economics standpoint: the tax loophole is so gigantic that it will impact current account and currency. But I don't expect that I'll learn the first thing about this at university.


Brad Setser - can Europe declare fiscal victory and go home? No. No they can't:
In the face of the Brexit shock, standard (MIT?) macroeconomics says that a region that runs a current account surplus, that has a high unemployment rate, that has no inflation to speak of, that cannot easily respond to a short-fall in growth by lowering policy interest rates (policy rates are, umm, already negative, and negative rates are already, cough, adding to problems in some banks), and that can borrow for ten years at a nominal interest rate of less than one should run a modestly expansionary fiscal policy.

The eurozone as a whole clearly has fiscal space. The eurozone’s aggregate fiscal deficit is lower than that of the United States, Japan, the United Kingdom, and China. Adjusted for the cycle, the IMF puts the eurozone’s overall fiscal deficit at about 1 percent of GDP (without adjusting for the cycle, the eurozone’s overall deficit is around 2 percent of GDP). Even without any cyclical adjustments, the eurozone now runs a modest primary surplus, and simply refinancing maturing debt at current interest rates should lead to a lower headline deficit.

But the eurozone isn’t a unified fiscal actor. Right now the countries that could run a bigger fiscal deficit without violating the eurozone’s rules have said they won’t, and the countries that are already running deficits that violate the rules are facing new pressure to comply with the rules. The aggregate fiscal stance of the eurozone thus is likely to be contractionary.

Germany of course is the best case of a country that the market wants to finance. Germany actually did do a fiscal expansion in 2016. It had a fiscal surplus of almost a percent of GDP in 2015, and in 2016 it is projected to be in balance. (See the IMF Article IV report) But on current plans Germany won’t do more in 2017 as more would mean a deficit. The fiscal impulse from here out is thus likely to be flat, barring a major policy shift.

The Dutch have, by any reasonable estimate, enormous fiscal space (massive current account surplus, low gross debt, tons of pension assets, and, the market is willing pay the Dutch government to borrow, at least for maturities shorter than ten years). But the Dutch too do not seem to want to use their fiscal space. The European Commission lauded the Netherlands fiscal policy precisely because it was committed to bring a 2 percent of GDP fiscal deficit down to between 1 and 1.5 percent of GDP in 2017. With a structural deficit estimated to be a bit over 1.5 percent of GDP in 2015, the commission believes further consolidation is required to get the Dutch structural deficit down to the target of half a point of GDP. No matter that there has been a persistent problem with demand in the Netherlands.

France has somewhat higher debt levels than Germany or the Netherlands. But a country that currently can borrow for ten years at twenty basis points, a rate well below the interest rate the market charges the United States, also doesn’t need to consolidate today. Consolidation now—if you believe Fat├ís and Summers—might well raise debt to GDP levels. But that doesn’t seem to be the commission’s view. The commission’s 2015 report emphasized that France had failed to do enough structural consolidation in 2015, and argued it wasn’t planning to do enough in 2016 either. It is hard to see the commission changing its tune for 2017.
But no, you guys go ahead and buy European stocks. Go ahead. No, seriously, if Schauble's fiscal hawkishness gives you such a screaming erection, then you just go ahead and invest in European stocks and see where that gets you.


Polemic's Pains - Brexit bounce. Here's an interesting tidbit that he buries at the end:
With bonds and equities all pushing highs we could summarise everything simply as long cash positions being stopped out.
"Long cash stopped out" is kinda a more elegant version of what I was thinking these past few days, what with everything including gold flying to new highs.

and as far as a British trade deal with India goes:
I am impressed at the speed with which Osborne has started peddling UK Inc in the US and Sajid Javid’s trip to India. However we do need a dose of reality over the likelihood of positive outcome from that India trip. The EU has been negotiating a trade deal since 2007. I was wondering if the UK could pip them to a deal from a standing start but I was educated last night by twitter friend 'Brahman @_Financeguy' whose tweets I aggregate here -


"India won't agree FTA without free movement of IT personnel. EU negotiations stalled on UK objections to that. India also seeking equivalence in recognition of professional qualifications - law, medicine under Mode 1 with rights of Indian qualified professionals to practice freely in the EU (for these purposes the UK) . U.K. resisting this too. India also seeking recognition of its data protection regime as equivalent to that if the EU for privacy etc. India also seeking recognition of its IPR (eg for pharma ethical drugs and generics) as equivalent to EU & lastly India seeks recognition of its whisky as equivalent. All these resisted by UK on its own or with one or two others. Point is that ex-UK India-EU deal more likely with India competing with UK to supply some services to EU market”

So don’t expect anything soon. That bit about the whisky equivalents really surprised me.
Yeah, I sincerely doubt that the Cons will follow a "kick out the Pakis" vote with a trade deal that allows in a million Indians. Then again, it's not like England has much of an IT industry anyway... I doubt all these Indians will be moving to Newcastle to do call centre work.

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