Here's my Top 10 links from around the Internet at 9 am in association with NZ Mint.
I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.
I'll pop the extras into the comment stream. See all previous Top 10s here.
This nation has a few too many productivity retardents....including this list...but it is fun...
1. China getting old before it gets rich - The Economist does a nice job here of attacking China's one child policy and explaining why it is a demographic and economic disaster in the making, as well as a social and political disaster.
Many people predicting Chinese growth forever forget about its ageing and unbalanced population with way too many men thanks to abortions of female babies.
I think it's risky to assume China's economy remains stable and growing at 9% plus ad infinitum.
Yet that's what our Prime Minister seems to assume in forecasting high commodity prices for a decade or two.
And it seems to be what many are betting will drag the developed world out of its deleveraging morass.
We'll see. Here's the Economist:
The policy has almost certainly reduced fertility below the level to which it would have fallen anyway. As a result, China has one of the world’s lowest “dependency ratios”, with roughly three economically active adults for each dependent child or old person. It has therefore enjoyed a larger “demographic dividend” (extra growth as a result of the high ratio of workers to dependents) than its neighbours.
But the dividend is near to being cashed out. Between 2000 and 2010, the share of the population under 14—future providers for their parents—slumped from 23% to 17%. China now has too few young people, not too many. It has around eight people of working age for every person over 65. By 2050 it will have only 2.2. Japan, the oldest country in the world now, has 2.6. China is getting old before it has got rich.
2. The Euro deal is far from done - The FT reports some banks are baulking at the deal cooked up for them last week by a bunch of politicians.
Several European banks with large exposures to Greek sovereign debt have yet to sign up to a plan for private-sector bondholders to contribute €37bn to a second Greek rescue package, the Financial Times has learned.
The UK’s Royal Bank of Scotland, Germany’s DZ Bank and LBBW and Austria’s Erste Bank, which between them hold about €3bn of Greek sovereign debt, are among the lenders that have not yet committed to take part in a programme that will see participants swap or roll over their Greek debt for bonds that mature in 30 years.
3. Why America is truly stuffed - The return on investment by American companies on lobbying Congress is 22,000% according to this academic study cited by Mark Perry at Carpe Diem.
We identify 93 firms engaged in lobbying for the rate reduction. Combined, they repatriated $208 billion (or 70% of the total). We estimate that the lobbying group spent $282.7 million on lobbying expenditures and received $62.5 billion in tax savings, or a 220:1 return on investment (22,000%).
Using a statistical regression, we estimate that lobbying activity is highly associated with amount repatriated even after controlling for firm industry, size, profitability, liquidity and growth prospects. Surprisingly, this tax provision was so lucrative that several firms borrowed funds to repatriate the cash as earnings.
4. China's bubble is about to pop - The Telegraph's Jeremy Warner reports China's real estate bubble is about to pop as local government borrowers realise they built too many bridges to nowhere that can't pay their way.
As noted in the IMF’s latest staff report on China, published this week, the property sector occupies a central position in the Chinese economy, directly making up some 12pc of GDP. It is also highly connected to the health of basic industries such as steel and cement, and to the success of downstream industries like domestic appliances and other consumer durables.
More worrying still, direct lending to real estate (developers and household mortgages) makes up around 18pc of all bank credit (see second graphic below). Again, even by UK standards, this is extreme. And for local authorities, which account for 82pc of public spending in China, property related revenues are an important consituent of the overall revenues used as collateral to back borrowing to fund property and infrastructure development. There’s an element of ponzi scheme here.
5. A deal may not matter - Even if the US politicians do manage to cobble together a debt ceiling deal at the last minute, it may not matter. America seems set to lose its AAA credit rating anyway.
Here's Reuters with its analysis on the credit rating issue.
The ratings agencies have said the top-notch U.S. rating will only be safe if they see a credible plan from Congress and President Barack Obama to address the country's growing debt burden.
S&P would likely be the first to remove the triple-A status -- a move that could raise borrowing costs for Americans for generations to come, with Moody's and Fitch expected to follow, though perhaps not immediately.
The ratings agencies have suggested that deficit-reduction measures of some $4 trillion over 10 years could allow the U.S. to retain its current rating, though that also depends on a healthy pace of economic growth.
6. Dumb debt - How is it New Zealanders can still afford (or are allowed) to spend NZ$856 million in the year to June 30 through 18,309 gaming machines in pubs and clubs (but not casinos).
Spending in the June quarter of NZ$219.9 million was up 4.8% on the same quarter a year ago, Department of Internal Affairs Stats show.
7. Both barrels - Jeffrey Sachs lets Obama have it with both barrels in this HuffPo column. Damn right too.
The Republicans also misrepresent the costs and benefits of closing the deficit through higher taxes on the rich. Americans wants the rich to pay more, and for good reason. Super-rich Americans have walked away with the prize in America. Our country is run by millionaires and billionaires, and for millionaires and billionaires, the rest of the country be damned. Yet the Republicans and their propaganda mouthpieces like Rupert Murdoch's media empire, claim with sheer audacity that taxing the rich would kill economic growth. This trickle-down, voodoo, supply-side economics is the fig leaf of uncontrolled greed among the right-wing rich.
The Democrats of the White House and much of Congress have been less crude, but no less insidious, in their duplicity. Obama's campaign promise to "change Washington" looks like pure bait and switch. There has been no change, but rather more of the same: the Wall-Street-owned Democratic Party as we have come to know it. The idea that the Republicans are for the billionaires and the Democrats are for the common man is quaint but outdated. It's more accurate to say that the Republicans are for Big Oil while the Democrats are for Big Banks. That has been the case since the modern Democratic Party was re-created by Bill Clinton and Robert Rubin.
Thus, at every crucial opportunity, Obama has failed to stand up for the poor and middle class. He refused to tax the banks and hedge funds properly on their outlandish profits; he refused to limit in a serious way the bankers' mega-bonuses even when the bonuses were financed by taxpayer bailouts; and he even refused to stand up against extending the Bush tax cuts for the rich last December, though 60 percent of the electorate repeatedly and consistently demanded that the Bush tax cuts at the top should be ended. It's not hard to understand why. Obama and Democratic Party politicians rely on Wall Street and the super-rich for campaign contributions the same way that the Republicans rely on oil and coal. In America today, only the rich have political power.
8. China's unsustainable building boom - Henry Sanderson and Michael Forsythe write at Businessweek about the crazy building going on in China.
Workers toil by night lights with hoes, carving the Olympic rings into the ground in front of an unfinished 30,000-seat stadium, a gymnasium, and a swimming complex in Loudi, a city of 4 million in Hunan province. Loudi is paying for the project with ¥1.2 billion ($185 million) in bonds, guaranteed by land that city officials value at $1.5 million an acre. That’s about the same as prices in Winnetka, a Chicago suburb where the average household earns more than $250,000 a year. People in Loudi take home $2,323 annually. And there are no Olympics scheduled to arrive here. Ever.
“The debt isn’t a problem as Loudi is not a developed place,” says Yang Haibo, an official with the city’s financing authority, as he sits with colleagues in a smoke-filled meeting room under a No Smoking sign. “It’s an emerging city.”
Loudi is just one of scores of cities across the country borrowing to build roads, commercial centers, and subways after the central government urged them to spend their way out of the 2009 global recession. Local governments have sold more than ¥400 billion of bonds since 2008—part of as much as ¥14.2 trillion in local borrowing. The governments have set up more than 10,000 financing vehicles in the past decade to get around laws prohibiting them from taking direct loans.
One third of those financing vehicles don’t have cash flow to service their loans, China’s banking regulator says. Loudi’s investment vehicle had a negative operating cash flow of ¥187.1 million in the first half of 2010, a period during which it borrowed ¥284 million. “China is playing with fire like we played with fire,” says Carl Walter, who retired this year as chief operating officer in China forJPMorgan Chase. (JPM) Yang, the Loudi official, isn’t worried. “When we get to the end of our loan,” he says, “we’ll just pay it back.”
9. 2,000 physicists work on Wall St - This Ted Talks video from Kevin Slavin talks about how algorithms are used to undersand markets and what's wrong with that...
When the algorithims fight with each other humans lose...and nature is reshaped.
It's well worth watching the 15 minutes. Fans of 2001 A Space Odyssey will appreciate it.
Don't touch that button Dave....
10. Totally Stephen Colbert on the Debt Ceiling debate.
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.