Here are my Top 10 links from around the Internet at 10 to 8 pm, brought to you in association with New Zealand Mint for your reading pleasure. I welcome your additions and comments below, or please send suggestions for Wednesday's Top 10 at 10 via email to bernard.hickey@interest.co.nz. I'll pop any surplus suggestions I get into the comment stream under the Top 10.
1. Loan shark trucks - Simon Collins at the NZ Herald reports on how teenage girls (who are often solo mums) are getting into tens of thousands of dollars in debt by buying designer clothes from trucks atttached to loan sharks (or should that be loan sharks attached to trucks...). Grrrrr. HT Gareth.
In one case, a former teen mother who is now a grandmother, aged 35, has racked up debts to eight finance companies totalling more than $50,000. Social worker Rhonda Tautari said many young mothers were getting into debt as young as 16, when they qualify for the emergency maintenance allowance.
"We have girls that sign up to about four [clothing] trucks when they're 16," she said. "There should be an age limit of 18."
Clothing trucks and "loan sharks" were a prime target at the Manurewa forum held by the Alternative Welfare Working Group, which is holding hearings to provide an alternative to the Government's official working group aiming to reduce welfare dependency, chaired by economist Paula Rebstock.
2. In praise of inflation - James Suroweicki writes at the New Yorker why inflation may have to be used to fix America's debt problem. This is the crux of the argument. And explosive with it. No wonder gold is hitting record highs.
Inflation helps debtors and spenders at the expense of creditors and savers. It’s easy to see why this makes us uncomfortable. It seems to reward those who have behaved recklessly, and to punish those who played by the rules, saving their money and living frugally.
But the economy doesn’t exist, in the end, to reward virtue and punish vice. It exists to maximize our well-being, and, currently, doing that may require helping the undeserving and irresponsible, if only because there are so many of them. Boosting inflation isn’t the right policy, but it may just be the correct one
3. The case against home ownership - Time Magazine's Barbara Kiviat has written a detailed piece arguing that home ownership let down America. HT Stephen Olsen via email.
The dark side of homeownership is now all too apparent: foreclosures and walkaways, neighborhoods plagued by abandoned properties and plummeting home values, a nation in which families have $6 trillion less in housing wealth than they did just three years ago.
Indeed, easy lending stimulated by the cult of homeownership may have triggered the financial crisis and led directly to its biggest bailout, that of Fannie Mae and Freddie Mac. Housing remains a drag on the economy.
4. It's the demand not the financing - This chart below from Economix on what is constraining US small businesses is interesting because it shows that taxation and financing are not the major problem. A lack of sales and demand is the major issue.
Additionally, lending help for small businesses is another key stimulative policy in play, and meanwhile financial and interest rate concerns are a comparably negligible concern. By contrast, the share of companies saying the poor sales is their main challenge has about doubled since the downturn began.
Exactly how to address soft demand, though, is even more complicated and contentious than supply-side policies like cutting taxes or providing interest-free loans.
Given waning confidence in the Fed, the FOMC probably feels that it can't go the safe route and announce a few hundred billion in new asset purchases, with more to come if needed, as each subsequent purchase would further reinforce the idea that the Fed is actually powerless.
It needs to alter expectations, and that, it may calculate, will take a significant announcement, of $2 trillion in new asset purchases or more. And once it has done that, it will own the recession. The Fed can buy credibility and with it an end to disinflation and much of the pain of the slow recovery. But doing so would put the Fed on the hook in the event that policy fails.
6. The real problem is distribution - Robert Reich says America can't fix its problems by forcing China to revalue its currency. It actually needs to rebuild its middle class.
American isn’t suffering high unemployment because we’re buying too much from China and not selling them enough. Trade with China is a small portion of the U.S. economy. Twenty million Americans lack jobs because American consumers – especially America’s vast middle class – can no longer spend what’s necessary to keep nearly everyone employed. After three decades of stagnant middle-class wages, during which almost all the economic gains have gone to the top, we’ve finally reached a day of reckoning.
The middle class can no longer borrow vast sums by using their homes as ATMs. They can’t squeeze more working hours out of two wage earners. And they have to start saving for retirement. The central challenge we face isn’t to rebalance trade with China. It’s to rebalance the American economy so its benefits are more widely shared.
I would contend that China is now playing a very, very dangerous game. With the US trade deficit deteriorating again , and – much to my surprise – the Chinese trade surplus widening, patience is rapidly running out in the US with China’s currency policies.
I believe we are now nearer to an outbreak of trade war than at any time since the 1930s. Any downturn in the global economy back into recession would almost certainly guarantee such a result, as the political pressure to do something mounts.
This all sucks capital out of the system and increases risk premia and longer term interest rates for everyone.
9. Worth it for the chart alone - Here's Steve Keen on US private sector debt deleveraging.
The aggregate level of private debt now towers over the economy, putting into sharp relief the obsession that politicians of all persuasions have had with the public debt. Rather like Nero fiddling as Rome burnt, politicians have focused on the lesser problem while the major one grew out of control. Now they are obsessing about a rise in the public debt, when in a very large measure that is occurring in response to the private sector’s deleveraging.
10. Totally irrelevant video - Stephen Colbert says he wants to march to keep fear alive.
| The Colbert Report | Mon - Thurs 11:30pm / 10:30c | |||
| March to Keep Fear Alive Announcement | ||||
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34 Comments
Bernard: teenage girls are getting into tens of thousands of dollars in debt by buying designer clothes from trucks atttached to loan sharks (or should that be loan sharks attached to trucks...). Grrrrr.
Grrr here. Bernard, do you really want the government to take care of how adults spend there money? For crying out loud, this is a 35 year old who can't handle money. So what? This is part of being an adult, being responsible. If you can't, I'm sorry, but the government can't help you.
Or is the next step regulation as proposed in Britain? Your money goes to the IRD, and it returns the portions it sees fit, or perhaps you just apply for grants, and the IRD determines that no, you don't need designer clothes.
You're an adult, if you make a mistake, too bad.
Berend,
I don't want to control how people spend money. I just don't want my taxpayers money to help line loan shark pockets. I'm betting at least one of those three generations is on the domestic purposes/unemployment/sickness/working for families benefit.
cheers
Bernard
One more: on a 16 year old with huge debt: give me one example. I'm not taking the word of Sue. A 16 year old can't get a loan, and I would be surprised this is currently legal. And who would give a loan to a 16 year old without a guarantee you would get a profit?
#6+ Obviously the world economy is in such disarray that must of the budgets of some rich nations are now devoted to armaments for economic support of some struggling nations. What a bloody bit of horse trading while the big powers (suppliers) in dishonesty constantly talking about disarmament. What a waste !
Kunst its far later than we think..The reasons that the Israelies didnt get upset with the Saudi Arms deal was because they themselves took possesion of more advanced weapons.Their are esimated to be Ten Uranium enrichment facilities in Iran, far more than required for peacfull purposes.The weapons that they have supplied Hezbolla with, are top of the line Chinese Sams. Among other things.I'd like to say that it was a saber rattling exercise..but its gone way beyond that, as an Isralie drone took out a top Iranian Nuclear scientist, in the attempt to slow down the enrichment..
The Russians have claimed that they have been duped by Iran,and believed the :"Peacefull purposes line"..for now they are out of the picture. Its almost a month since Israel ordered all the fuel for the coming showdown. All this is available on the internet,and is well known, but not a dicky bird on the news casts..that must tell you something. Is the pacification of the money markets strategical?
The most Ominous thing is that the Enrichment facilities are buried so deeply that only a Nuke can take them out.
Then finally where does that leave us and Australia?..We will stand by our allies without doubt.You can work the rest out.
Don’t mention the “Middle- East conflict” – Bernhard’s blog would be on fire ! Now with a double tip recession looming, people financially and socially struggling, worldwide climate change problems, food shortage and with the prospect of millions dying etc. - I think money could be better spend then in armaments. This isn’t a good development, especially after the big powers and now suppliers, a year ago talked about disarmaments.
In a Swiss News Paper I'm reading: H. Clinton the biggest weapon trader in history- deal with the Saudis.
Well- I'm sure some of the corrupt money end up in corrupt Swiss Bank accounts - signed on by corrupt Swiss bankers - earning millions of corrupt money - coming from corrupt weapon traders.
I think we are not only heading for a "Cluster Fu##" But we seem to be already in one.That graph up there on debt to GDP. shows the history of events as way points.That graph represents millions of individuals...it also represents the action of a group conciousnes.Even if you knew what the future was..their aint nothing anyone can do about it. Whatever way you look at it, its not that comfortable. In it you can see that.. War is a great equaliser of wealth. Look at the halcyon days after the second world war...The days when the Yanks took the grand tour and invented H.P.and the days of the gadgets and aliminium foil. Not to mention those amazing cars with fins,and women in gingham dresses pointing at the latest time saving device..But that was the dream of another America. If your "punch drunk in a cluster f####" its best to just wait it out.Its like weather at some time it will pass.
I think the Economix chart may not be telling the whole story. Yes, many businesses are suffering a lack of demand. However I think you can argue that in part this reflects the fact that the composition of US business has been biased towards meeting demand created by unrealistic levels of consumption spending, which has inevitably and correctly dropped (Steve Keen's chart is relevant here as well).
The pressing need for the economy in the medium to long term is to make a very difficult structural adjustment in the direction of business activity that increases the economy's overall productivity. And to make this adjustment, taxation and financing are probably more critical factors than Economix suggests.
There seems to be a tendency on the part of some commentators to think that getting out of the crisis means getting back to where we were before the crisis, i.e. restoring consumption. While limited support for spending may be justified in the short term simply to keep heads above water, it is not a real solution.
#2 if we accept his premise "that there is no other choice" then the obvious choice for us is to be "irresponsibly frivolous in our borrowing and spending " and for bankers to be "irresponsible in their lending"...so loans to 16 years old for flashy fashion is not such a bad idea after all ??
BTW is the world really into deleveraging ?? or is it just plain and simple old fashion default ?? This taken from Big Picture
"The total value of home-mortgage debt and consumer credit outstanding has fallen by about $610 billion, to $12.6 trillion, according to the Federal Reserve. Of that $610 billion, “banks and other lenders charged off a total of about $588 billion in mortgage and consumer loans.” "
@#6 right on Robert Reich
After three decades of stagnant middle-class wages, during which almost all the economic gains have gone to the top, we’ve finally reached a day of reckoning.
We've had 3 decades of neoliberalism and globalisation, and it has failed. The effect has been to enrich the top 1% and export our manufacturing base to nations with no labour laws. I guess it's always a punt trying new economic theories, as it will be when we try something else, but it's gotta be time for a new direction.
n
Debt is debt..the piper must be Paid. If you default, the Debt goes up..In the end you can beg for mercy...Go Bankrupt...Or kill the Piper...The Lender has all the definitions of a Parasite,and will suck from its host and get bigger and bigger.:Mortguage" by definition means "Death grip".Poor struggling farmer,has been paying off rich farmer for years, he has a bad season and cant meet the interest payments and defaults...Rich farmer calls in the Debt ..takes his land and kicks poor farmer onto the street. Poor farmer Kills rich farmer..Rich farmers kids kill poor farmers kids. Which only goes to prove..."Income one pound..outgoings one pound and sixpence equals misery......Income one Pound..Outgoings nineteen and sixpence equals happiness....simple isnt it?..why dont we get it?
Re 16 year olds getting loans. We already have adequate protections in the existing law.
Under the Minors Contracts Act contracts with minors (= those under 18) are unenforceable unless the other party can convince a court that the contract was "fair and reasonable". IN the recent case Wine Country Credit Union v Raynor the credit union was unable to enforce a loan agreement with 2 17 year olds who had borrowed about $12,000 to buy a car. While the terms of the loan were found to be fair, the court said it was unreasonable in the circumstances. These clothes truck loans would almost certainly be found to be the same. So those who entered into these contracts under the age of 18 can probably just walk away and ignore the sharks.
Some of these loans might also be found harsh or oppressive under the Credit COntracts and Consumer FInance Act as well.
The poverty trap of the 2010's and beyond , is to be asset poor , and requiring a government pension or welfare . And this sad state will affect millions in developed economies around the world . The governments in those countries are up to their eyeballs in debt , or beyond . This include much of Europe , the USA/Canada , and of course , the NZ-Debtanic .
The emerging market economies are set to leave us in the dust . ................ And they will be remorseless , in their ascendency !
until we can educate kids at intermediate school level about financial literacy this "glory box" mentality will prevail amongst the lower socio's.
it's the same principle as the chrisco xmas hamper thing..these buying off the truck, christmas clubs et all are what mum did and nana did so we do it to etc etc.
when you go to asian countires they're actually happy as there are no tomorrows ;always today so why worry about repayment?
same in our low socio's..why worry when we're rooted anyway?
something will turn up and as for a credit rating being affected by racking up debts?..whats dat?
gotta go mr .whippy is outside and i haven't got my yellow spandex on and my nipple clamps?!
Don't think financial education matters now. It's what got us into this mess - economists not being taught about reality, physics and limits. They in turn, convinced all the pathetically eager PI's, and the wave who invested in the Goldcorp/Ariadne nonsense, then in the Bridgecorp era. Some were the same folk! Totally different demographic, same stupidity.
Practical survival skills might be more appropriate - but given that there will be 1-3 billion around by 2050, not sure if I want to have the extra competition.
Beyond Peak Energy, Rob, finances are in serious doo-doo. Usury reward has to trend to zero, and the debt-repayment goalposts march further away from you each kick you make.
Maybe you can bet on the increasing failure-rate, for a while.
“Market rents are growing across most regions and dwelling types”
Here is Bernard’s favourite link, which he suddenly started to ignore:
http://www.dbh.govt.nz/market-rent-analysis
“…the growth in rents continues, stronger in Auckland than for New Zealand”
Why would Bernard ignore that? I can't understand why people like Ollie Newland think that because rents are rising then property prices must rise. The two are related but only once they are in "equilibrium". Currently they are not - at least on an historical basis.
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