Links. Drowning job seekers, fuzzy asset prices, the trouble with real estate banking.
1) More than 300 people searching for work and a better life drown in the Mediterranean.
“The UN’s refugee agency, UNHCR, says more migrants are dying because search and rescue efforts have been reduced. Italy’s major patrol and rescue operation ended last year. A smaller scale EU operation, Triton, took over. The UNHCR says about 3,500 migrants died trying to cross the Mediterranean Sea to Europe in 2014.”
2) The problem with NIIP (Net International Investment Position). Does running a current account surplus for decades make a country richer? Not necessarily so. For one thing, it is quite difficult to estimate the value of ‘NIIP’. For another, the net position is the result of large gross positions, which means that a limited decline of the value assets may turn a positive net position into a negative position despite positive current account flows, which is what happened in the Dutch case. For quite some time, the decline of the value of international financial assets was larger than the (whopping) current account surpluses of the Netherlands.
3) Real-estate banking crowds out productive investment: “We also find some evidence of a financial Dutch disease – the faster the growth of financial services and the larger the lending-deposit interest spread, the slower the growth of the manufacturing sector”.
4) During the housing busts the number of houses sold often declined faster and more than prices. Why? According to Moen, Nenov and Sniekers this is about the balance between ‘buyers’ and ‘sellers’. When the ratio of sellers vs. buyers reaches a threshold, many people who wanted to buy first and sell their own house later change their mind and want to sell first, therewith increasing the ratio and pushing the housing market to a new, much lower equilibrium.
5) For quite some time, many pension funds assumed an 8% a year nominal return on investment (ROI) ‘forever’. Which was daft: way too high. It however seems that, at this moment, we are making the opposite mistake. The Dutch ABP pension fund (one of the largest in the world) had 14,5% ROI in 2014, an average of 6,5% between 2007 and 2014 (i.e. including the 20% setback in 2008) and between 1993 and 2014 – 7,9%. For the future, it is however forced to calculate with about 1,9% ROI (and declining)… which means that despite the 14,5% real ROI in 2014 pensions are not indexed. Nobody of course expected negative consumer price inflation in 2015, so I do not know if that’s a problem, but the point is that this 1,9% is equal to the ECB inflation target and it’s not too much to expect that long run ROI will be at least slightly above this. This, of course, does ad to the deflationary pressures in the economy. And maybe, just maybe the ECB target is not credible.