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Today in Real Time Economics, bitcoin mania worries central bankers, but investors? Not so much. The European Central Bank thinks long and hard on euro strength, Germany enters a period of political uncertainty, businesses reconsider tax strategies, and organized labor sidles up to the White House on trade policy.
CENTRAL BANKS WARN ON BITCOIN
Central bankers are stepping up warnings on bitcoin and other cryptocurrencies.
“There is a bit of a, I would say, speculative mania around cryptocurrencies in terms of their valuations, which I view as pretty dangerous, because I don’t really see what the actual true underlying value of some of these cryptocurrencies actually is in practice,” New York Fed President William Dudley said Thursday.
That was just the latest, Michael Derby reports. Bank of Canada Gov. Stephen Poloz has called buying bitcoin “closer to gambling than investing.” European Central Bank President Mario Draghi earlier this month warned that digital currencies should be regarded as “very risky assets.” Bank of England Governor Mark Carney on Monday said bitcoin had “pretty much failed thus far” as a form of money.
IS ANYONE LISTENING?
Bitcoin’s ride has been a wild one. The digital currency has fallen about 45% since hitting a record high just above $19,500 in mid-December.
That hasn’t dented the popularity of one fundraising method: so-called initial coin offerings, Paul Vigna reports. Sales of those digital tokens have already raised about $1.66 billion this year. That puts the market on pace to top last year’s total of $6.5 billion raised in coin offerings.
Investors have created some of the best-capitalized startups in incredibly short periods. The $1.5 billion raised by block.one in less than a year is equal to the amount raised by Twitter Inc. between 2007 and 2011 across nine separate funding rounds.
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WHAT TO WATCH TODAY
The New York Fed’s William Dudley, the Boston Fed’s Eric Rosengren, the Kansas City Fed’s Esther George and the Cleveland Fed’s Loretta Mester speak at a monetary-policy forum in New York.
The San Francisco Fed’s John Williams delivers his outlook on the economy and monetary policy in Los Angeles.
TOP STORIES
BUFFETT AWASH IN CASH, NOT BITCOIN
None of that bitcoin for Warren Buffett.
Berkshire Hathaway has used its mounting cash pile to become one of the world’s largest owners of U.S. Treasury bills, Nicole Friedman and Daniel Kruger report. It held more bills around the end of the third quarter than large countries such as China and the U.K.
Investors will look to Mr. Buffett’s closely watched annual letter on Saturday for new clues on what the conglomerate plans to do with all its cash, sage words on the economy and other bits of wisdom from the Oracle of Omaha.
EURO-DOLLAR SPAT
European Central Bank policy makers appear worried the Trump administration will talk down the dollar some more.
ECB officials had a lengthy exchange about the strength of the euro currency, and raised concerns about “statements in the international arena” that affected the exchange rate at their last policy meeting, Tom Fairless reports.
U.S. Treasury Secretary Steven Mnuchin early this month said a “weaker dollar is good for trade,” comments that pushed the currency to its lowest level in three years and spurred sharp criticism from ECB President Mario Draghi.
POLITICAL UNCERTAINTY IN EUROPE’S BIGGEST ECONOMY
Germany’s economy has been a global bright spot. Earlier today, we learned activity eased a little toward the end of 2017, though a booming export sector kept Europe’s largest economy at solid a 2.5% annual growth rate in the fourth quarter.
But the European Union’s pre-eminent member and longtime anchor of political stability may be heading into uncharted territory, Bojan Pancevski writes. The country’s Social Democratic Party rank-and-file will decide by the end of next week whether to renew its unloved coalition with the conservative Christian Democratic Union of Chancellor Angela Merkel or go into opposition.
It’s not clear what will happen. The uncertainty is a result of an accelerating fragmentation of the political center that could have detrimental impact on much-awaited domestic reforms and the overall governance of the EU.
TO ‘C’ OR NOT TO ‘C’
Pass-through businesses are rethinking their status after the tax overhaul lowered corporate rates.
For many entrepreneurs, the big question is whether to operate as a C corporation, which pays its own taxes to the Internal Revenue Service, or as a pass-through company, which pays tax through individual rather than corporate returns, Ruth Simon reports. The tax bill cut the top corporate tax rate to 21% from 35%, while the top individual rate was lowered to 37% from 39.6%. The caveats pile on from there.
Many business owners have a March 15 deadline to decide.
THE OTHER NAFTA ALLIANCE
Here’s something from earlier in the week that’s worth following. President Donald Trump and organized labor may be strengthening an alliance on trade policy, including the talks to renegotiate the North American Free Trade Agreement.
Mr. Trump met at the White House with Richard Trumka, president of the AFL-CIO labor federation, and the presidents of the Teamsters, the United Auto Workers, the United Steelworkers and others, Eric Morath reports. “Labor is united in its view that NAFTA is a disaster for working people and must be fixed,” a union statement said.
Mr. Trump has said he would walk away from trade deals, including Nafta, that didn’t benefit American workers, though business coalitions and members of his own party have recommended caution. Union backing could shore up Democratic support on White House trade policy.
CHART OF THE DAY: HOME SALES
This week brought data showing sales of previously owned U.S. homes experienced their sharpest annual drop in more than three years in January. Next week comes new-home sales. Both market segments have come a long way since the depths of the housing bust but now face problems with low inventories, rising prices and higher interest rates.
TWEET OF THE DAY
WHAT ELSE WE’RE READING
Going to the hospital is more expensive than you thought. Of course hospital admissions increase out-of-pocket medical spending. But for insured nonelderly patients, they also reduce earnings, income, access to credit and consumer borrowing, U.C. Santa Cruz’s Carlos Dobkin, MIT’s Amy Finkelstein and Raymond Kluender, and Northwestern University’s Matthew Notowidigdo write in the latest American Economic Review. “In the three years following a hospital admission, the decline in average annual earnings is about $17,000.”
Tax jurisdictions that host large firms have lower taxes. That’s at least in part because large firms lobby harder and can more easily pick up and move than their smaller counterparts, the University of Bochum’s Nadine Riedel and Oxford University’s Martin Simmler write. “The effect is statistically significant and quantitatively relevant, suggesting that the rising importance of large businesses may trigger shifts towards a more business-friendly design of (tax) policies.”
from Real Time Economics http://ift.tt/2EXarkx
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