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Wednesday's Top 10 with NZ Mint: Roubini asks: Is Capitalism doomed?; Colin Meads promotes carbon credits scheme; China's growth S curve; Rick Perry vs Ben Bernanke; Dilbert

Posted in Opinion

Here's my Top 10 links from around the Internet at 10 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.

Today is a first. I have a Colin Meads video at number 9.

1. Is Capitalism doomed? - Seriously. It's worth asking the question and Nouriel Roubini is now asking it over at Project Syndicate.

His diagnosis of the current problems for global capitalism is spot on.

He was one of the first to predict the crisis we've been in for three years.

Related Topics

Roubini's summation is pithy and realistic.

He is saying the current system is broken.

He's not arguing for socialism.

But he certainly thinks the laissez faire version of capitalism we have is broken.

This is today's must read, I reckon.

To Karl Marx, it seems, was partly right in arguing that globalization, financial intermediation run amok, and redistribution of income and wealth from labor to capital could lead capitalism to self-destruct (though his view that socialism would be better has proven wrong). Firms are cutting jobs because there is not enough final demand. But cutting jobs reduces labor income, increases inequality and reduces final demand.

Recent popular demonstrations, from the Middle East to Israel to the UK, and rising popular anger in China – and soon enough in other advanced economies and emerging markets – are all driven by the same issues and tensions: growing inequality, poverty, unemployment, and hopelessness. Even the world’s middle classes are feeling the squeeze of falling incomes and opportunities.

To enable market-oriented economies to operate as they should and can, we need to return to the right balance between markets and provision of public goods. That means moving away from both the Anglo-Saxon model of laissez-faire and voodoo economics and the continental European model of deficit-driven welfare states. Both are broken.

The right balance today requires creating jobs partly through additional fiscal stimulus aimed at productive infrastructure investment. It also requires more progressive taxation; more short-term fiscal stimulus with medium- and long-term fiscal discipline; lender-of-last-resort support by monetary authorities to prevent ruinous runs on banks; reduction of the debt burden for insolvent households and other distressed economic agents; and stricter supervision and regulation of a financial system run amok; breaking up too-big-to-fail banks and oligopolistic trusts.

Over time, advanced economies will need to invest in human capital, skills and social safety nets to increase productivity and enable workers to compete, be flexible and thrive in a globalized economy. The alternative is – like in the 1930s - unending stagnation, depression, currency and trade wars, capital controls, financial crisis, sovereign insolvencies, and massive social and political instability.

2. The magic 147 - Science News reports a study of economic relationships between over 43,000 corporations globally found just 147 controlled 40% of the monetary value of all those companies.

HT Johanna via email

Researchers aren’t sure what to make of the core’s interconnectedness. On the one hand, it could expose the whole network to risk.

“Imagine a disease spreading,” says Aven. “If you have a high school where everyone’s sleeping together and one person gets syphilis, then everyone gets syphilis.”

Here's the graphical representation of this.

 

3. A crisis of legitimacy - George Friedman at Stratfor has a nice overarching analysis of the global financial and political crisis now gripping America, China and Europe. HT Jason via email.

This, then, is the third crisis that can emerge: that the elites become delegitimized and all that there is to replace them is a deeply divided and hostile force, united in hostility to the elites but without any coherent ideology of its own. In the United States this would lead to paralysis. In Europe it would lead to a devolution to the nation-state. In China it would lead to regional fragmentation and conflict.

These are all extreme outcomes and there are many arrestors. But we cannot understand what is going on without understanding two things. The first is that the political economic crisis, if not global, is at least widespread, and uprisings elsewhere have their own roots but are linked in some ways to this crisis. The second is that the crisis is an economic problem that has triggered a political problem, which in turn is making the economic problem worse.

4. This is a system ready to blow - Larry Elliott writes well at the Guardian about the problems in the global economic system. He partly blames the collapse of Bretton Woods in 1971 when Nixon took America off the gold standard.

HT John via email.

Here's Elliott:

A crisis that has been four decades in the making will not be solved overnight. It will be difficult to recast the global monetary system to ensure that the next few years see gradual recovery rather than depression. Wall Street and the City will resist all attempts at clipping their wings. There is strong ideological resistance to the policies that make decent wages in a full employment economy feasible: capital controls, allowing strong trade unions, wage subsidies, and protectionism.

But this is a fork in the road. History suggests there is no iron law of progress and there have been periods when things have got worse not better. Together, the global imbalances, the manic-depressive behaviour of stock markets, the venality of the financial sector, the growing gulf between rich and poor, the high levels of unemployment, the naked consumerism and the riots are telling us something.

This is a system in deep trouble and it is waiting to blow.

5. The price of gold - This week is the 40th anniversary of US President Richard Nixon taking the US dollar off the gold standard and essentially beginning the dismantling of the Bretton Woods system.
 
Here's a chart showing the inflation adjusted price of gold since 1970.
6. China's S curve - Chinese specialists and academics Gabe Collins and Andrew Erickson have written a detailed piece arguing China's growth rate is about to slow to around 3-4% from around 7-8%. This has lots of great detail and is well worth a read.
John Key should read it.

China is likely to follow an S-Curve-shaped path of slowing growth as key internal and external challenges—including pollution, corruption,chronic diseases, water shortages, growing internal security spending, and an aging population—feed off of one another and exact increasingly large costs.

7. The old 'business needs certainty' line - Yves Smith does a nice job of dismantling the current meme doing the rounds in America about too much regulation stopping investment.

Here she is at Slate:

So why aren't businesses investing or hiring? "Uncertainty" as far as regulations are concerned is not a major driver. Surveys show that the "uncertainty" bandied about in the press really translates into "the economy stinks, I'm not in a business that benefits from a bad economy, and I'm not going to take a chance when I have no idea when things might turn around."

The "certainty" they are looking for is concrete evidence that prevailing conditions have really turned. But with so many people unemployed, growth flagging in advanced economies, China and other emerging economies putting on the brake as their inflation rates become too high, and a very real risk of another financial crisis kicking off in the Eurozone, there isn't any reason to hope for things to magically get better on their own any time soon. In fact, if you look at the discussion above, we actually have a very high degree of certainty, just of the wrong sort, namely that growth will low to negative for easily the next two years, and quite possibly for a Japan-style extended period.

8. He said this - Here's what Republican Presidential Candidate Rick Perry said about the US Federal Reserve Chairman Ben Bernanke and more money printing. It gives you an idea how the Tea Party is thinking and how monetary policy is becoming increasingly politicised. HT Joe Weisenthal.

Perry appears to be suggesting some sort of violent civic unrest...

“If this guy prints more money between now and the election, I dunno what y’all would do to him in Iowa but we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in history is almost treasonous in my opinion.”

9.  What was Colin Meads thinking ? - An outfit called NZ Carbon Farming has set up an operation to buy carbon credits off farmers with forests planted before 1990.

Here's the details on NZPre1990ForestCarbonProgram.

And they're using Colin Meads to sell it.

Didn't he learn anything from the Provincial Finance debacle. The government is putting in place legislation to punish celebrities who mislead the public. I'm not suggesting that's the case here, but one of the reasons it was put in place was the concern around the promotion by Meads and Richard Long and John Morrison of finance companies Provincial Finance, Hanover Finance and St Lawrence.

Colin Meads was a great rugby player and he's an excellent after dinner speaker. But I think he should stop reading scripts promoting quite complicated financial products.

Here's the video.

10. Totally Jon Stewart pointing out rightly how well Ron Paul did in the Iowa straw poll and asking why the punditocracy ignore him. Here's some similar, if less funny, from Paul Harris at the Guardian.

Here's my wild pick for next year's Presidential election: Ron Paul vs Obama.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

We welcome your comments below. If you are not already registered, please register to comment in the box on the right or click on the "'Register" link at the bottom of the comments.

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.

78 Comments

But did it have a WOF!  "A

But did it have a WOF!

 "A Queensland man has lost his licence for nine months after being found guilty of drink-driving a motorised esky"

 http://www.brisbanetimes.com.au/queensland/drink-driver-caught-riding-motorised-esky-20110817-1iwue.html?from=brisbanetimes_sb

 

1. Great to see mainstream

1. Great to see mainstream economists acknowledging what some on this site have been writing about for years :-)

4. 1971 was indeed a pivotal moment but we should go back to Bretton Woods in 1944 to really understand the problem: a unipolar currency system with the US at the centre. US insistence on global hegemony has built instability into the global financial system. Ironically this was entirely the oppoiste outcome of the intentions at BW. 

Balanced trade was sacrificed on the altar of global power. 40 years on from the abandonment of the Gold Standard, it is time to look at a new framework for global currencies, one which is designed to bring trade back into to balance and reduce hot money specualtive flows which are entirely destabilising to all economies.

When a country such as Switzerland is on its knees because of financial flows, one has to sit up and take notice. One can look to Malaysia's imposition of capital controls as a foretaste of what could happen. The Swiss are already talking about a euro peg. 

Can the policymakers make the right decision without the bankers interferring? That is the real question. 

 

 

Bernard, It’s not

Bernard,

It’s not going to be Ron Paul vs. Obama in 2012. It’s going to be (Insert a Country Club Conservative here) vs. Obama vs. The Spoiler Ron Paul. And Obama will recapture the White House by a nose.

It will be 1996 all over again

http://en.wikipedia.org/wiki/United_States_presidential_election,_1996

 

Fair point. I'm no expert in

Fair point. I'm no expert in US politics. But strange things are happening. The Tea Partyists have the bit between their teeth.

cheers

Bernard

My results are based on a

My results are based on a fraud free election. If the Republicans start in with the typical voting shenanigans then all bets are off.  However, I can’t; see Ron Paul appealing to Democrats so he will definitely split the Republican vote. Look for the Bachman/Palin full crazy express ticket!

Donald Trump for President!

Donald Trump for President!

Your Fired!

Your Fired!

Tch tch , very sloppy English

Tch tch , very sloppy English there , Troy  my boy .... " You're fired ! "

GBH you’re not

GBH

you’re not American so you have no right to call me out on my poor English skills or lack thereof since I'm a product of an inner city dysfunctional public school system where you don’t graduate but your paroled and can you tell by how this is like the longest sentence you have ever read and it doesn't seem to be stopping anytime soon besides nobody likes a grammar Nazi…

Brilliant ! ... on the basis

Brilliant ! ... on the basis of that heart-felt plea , I think that we can re-admit you into the Donald Trump Pursuit of Excellencies class , 2011 .

Congratulations , Troy .

OMG this is so

OMG this is so unexpected…

I would like to thank the Academy…my mom…the guy who created god…Bernard for make this blog possible…and they guy who picks up the trash every night after I go home…he’s awesome!!

sound of thunderous

sound of thunderous applause.......!!!!

Hard to transmit given the medium.

Not so sure on the country

Not so sure on the country club for sure..........On the one side Obama.....sure....on the other it could yet be the Tea Party, Palin must want in...and teh TP are proving a handful for GOP to deal with it seems.  I dont think Ron Paul will do much, but he strikes me as relatively honest....pity if thats the case.

Im not sure Obama will win myself, he was given a mandate/chance to win and has it appeares failed....I find it hard to believe he will be given a second chance....but then its a wierd country.

regards

sorry to be a few days late.

sorry to be a few days late. solo mothers benefits. i employed alot over the years, they were banned from working by the goverment due to a 61 % tax rate after less one days work. i had a lot who still worked and recevied the exact same as some one on the dole and not working $ 3.45 an Hour. this ban stopped them from ever getting back to real work and off the benefit. seems the first thing to do would just tax them tha same as everyone else. not as

We are seeing a slow

We are seeing a slow beginning to the end of globalisation....the world (esp developed economies) is finally feeling the toxic effects of world trade and capital flows...

Globalisation has taken almost all the tradeable jobs away from developed countries and relocated them to developing countries...in return for peace and stability, goverments offer unemployment benefits and cheap money.

Unemployment has reached the stage of unaffordability in the developed world, and finally everyone has decided that the debt taken out to pay for this unemployment is never going to be repaid 

Western developed countries populace has finally decided that this is no longer working to their advantage vis a vis the developing countries and has decided instead to revolt...the rise of the Tea Party and other right wing parties (in EU) is a sign that existing order is breaking down. 

In the near future we will see protectionisim by Developed countries with developing copuntries as favourite whipping boys.

I do wonder what form the

I do wonder what form the unravelling of globalisation will take, but I know it will have a huge impact on our high technology society.  As our world has become more and more high tech, manufacture has contracted to fewer and fewer countries.  As time goes by, the proportion of people who know how to design and build said devices moves to those fewer and fewer countries.  People who still have the skills in other countries either retire, or (in the hi tech world) become outdated and obsolete.

Globalisation unravels ...

Now who's going to keep your car running when it needs a new 'controller board'?  What about when your LCD (sorry LED) TV dies?  What about the electronics in your washing machine, microwave or fridge?  Your telephone? Your heat pump?

Think about how these products would look, if they had to be produced, from scratch, in New Zealand...

The collapse of globalisation will not be pleasant.

 

I have been pondering these

I have been pondering these Qs for a while, some are easy...TV is crap, so read.....oh wait much of reading material is now on line or on ebooks.....hmmm what happens when Google disappears?

Transport has to get simpler and items have to last a long time and be repairable. When things are simpler they are usually less efficient so wil use more energy, bad news that.

Our ancestors survived quite well or we wouldnt be here....however they had expanding access to materials and energy brought about by improving technology....when your technology regresses the energy and materials they can access is already gone...oops....I cant see a way around that one myself....

Heat pumps will go out, cast iron furnaces  in......telephones....even these use chips...we wont be making them here....valves maybe....

I think its going to be a very simple lifestyle.....

regards

 

 

There is a very real danger

There is a very real danger that if books are phased out in favour of online or electronic versions, that we may end up stuck in a situation where there is a massive loss of knowledge due to the breakdown of the entire hierarchy that supports said hi tech replacements.  In particular the devices where digital rights management are in effect (which are more and more these days).  Imagine being in a society where the tools to view the information are slowly but surely failing, and where it is illegal to transfer the information to a more durable medium, say to even print them out is illegal.

Certainly in an unravelling world, being digital will be a curse.

When Google will disappear I don't know, but at some time it looks likely to me that their services will transition from free to costing money, or, perhaps, having their use limited to certain users - groups in society, or perhaps countries.  Such a swing would give a tremendous advantage to those with access, compared to those without.

It's a bit sad I think.  The world economy requires exponential growth in order to continue to function, yet the US are cutting back their space program; the only hope we will have of being able to continue the exponential growth, by finding an ever increasing number of worlds to expand to.

Digital rights is part of

Digital rights is part of globaliastion....if globalisation goes, will a NZ Govn and ppl care? I suspect not.   Where is the real value in books?  Novels are nice but not directly libked to knowledge...  How much knowledge is needed in the real future world? tradesman type knowledge, yes, preserving food, yes, Doctors well to GP level and basic surgery, yes...appendix yes, hip joints? no.....dont need to know how to do that then...

I also recall a teacher saying that soon all a student would need was to be computer literate....(or some such)  somewhat short sighted....

Ever expanding worlds, isnt going to happen unless someone invents FTL...the maths suggests thats impossible....but then so was heavier than air flight 200 years ago I suppose.

I think there is an interesting piece on expotential growth, at the rate we are at in 2500 years we would be consuming the energy of an entire galaxy...so pretty obviously it has to stop long before then....

regards

Good novels are essential to

Good novels are essential to a good life. 

I think there is a lot of

I think there is a lot of information in books, but I'm not talking about novels.  The books I'm thinking of are ususally in the 600 Dewey Decimal range, and explain practical things such as how to spoke a bicycle wheel.  In fact anything along the lines of how to build, how to fix/repair anything is valuable in my opinion.  How to insulate your home, that kind of thing.  This comes under your tradesman type umbrella.  Maybe we will end up with guilds again.  Hopefully not all of the skills have disappeared before we start to need them again.  Things like brazing one can figure out for oneself without instruction, but fewer people can make brazing rod, tyres, or ball bearings, or whatever, with what they have access to in their garage.  On the other hand I think Kiwis have an advantage here because many still _have_ garages, and have had to make do in the past (and present) due to our isolation.

Regardsing faster than light travel, I'm not so sure whether that's necessary for the civilisation to expand from this planet.  I do wonder if it would be easier to use a higher dimension anyway, so you can just pop out somewhere else in the universe, without all the mucking about travelling there in 3D space.  Of course all this is theoretical and I don't know a great deal about the subject so bear that in mind. :-)

 

Guilds....I think there are a

Guilds....I think there are a lot of keen DIYers for woodwork at the very least, I would be surprised if they know as much if not more than some pros....

FTL, you have to go out and bring the materials back if this planet is to support 7billion or more.

In terms of making or repairing things I keep coming back to the Amish lifestyle...virtually no technology.....

Philbest if he ever bothered to read what I write would spit the dummy of course....."science technology will save us"

The new religion I suppose.....

Funny of course that such choose the technology and science they wish to believe...some scientists and enginers will save usfrom this energy problem, even when no one is saying its them or how....but if its AGW and scientists and enginers are saying how, its not a problem....

regards

Your valve cell phone will

Your valve cell phone will have nothing on the old bricks! I can just picture you holding your new phone up to your ear, one the size of a brief case.

On the plus side you will probably get a more rounded quality of sound from you valve phone.

Valves, coupled with a full

Valves, coupled with a full range high efficiency speaker with an alnico magnet.  Never mind that it's still in mono... ;-)

 

and fried ears.... regards

and fried ears....

regards

#9 Meads is out of line

#9 Meads is out of line promoting a scam on NZ. I notice the warmies have gone quiet during this cold snap.

A bit of background.

 

The ratifying countries were forced to agree to their Kyoto targets without knowing what the costs of meeting those targets would be. This is like agreeing to spend the rest of your life with someone you have only just met during a one night stand.

It is simply not a credible or sustainable commitment.

As a result, most Kyoto-ratifying countries have failed to significantly abate their greenhouse emissions and reach their targets.

And why should they? There is nothing unreasonable about exceeding emissions targets by significant amounts when you are unsure of the costs of meeting those targets.

Any other course of action would be sheer folly.

But Kyoto has very little to do with reasonableness. Just ask the New Zealanders. Our friends across the ditch signed up to Kyoto in December 2002, even though a 2001 National Interest Analysis on the case for ratifying the Kyoto Protocol could not decide whether moderate global warming would be detrimental or beneficial for New Zealanders.

Helen Clark's Government ignored this information and committed her country to a program of reducing emissions over the 2008-12 period to 1990 levels or to take responsibility for the difference.

In practice, that means hundreds of millions of Kiwi tax dollars will be paid to former Soviet Union countries, which have been lucky to accumulate carbon credits.

Actually, luck has had little to do with it. The surest way for a country to reduce greenhouse emissions and accumulate carbon credits is to implement policies which wreck the economy - something at which many former Soviet Union countries excel.

The New Zealand Treasury estimates New Zealand's Kyoto liability currently stands at NZ$708 million.

This doesn't sound like very much, but this guess is more than double what it was two years ago.

At that rate of increase, at the end of the first Kyoto commitment period in 2012, New Zealanders will owe about NZ$4.2 billion - or about NZ$1000 per person.

So, in a nutshell, the main effect of Kyoto will be for New Zealand taxpayers to subsidise bad economic policies by politicians in the former Soviet Union.

Read more: http://www.news.com.au/opinion/committing-to-kyoto-would-come-at-cost/story-e6frfs99-1111114657019#ixzz1VEwOYjAc

The "warmies" don't need to

The "warmies" don't need to say anything about this cold snap because they understand the difference between weather and climate.  

Funny thing though I caught

Funny thing though I caught the local green MP saying it was a one off.....had to ask why he was so sure and why it couldnt be the effects of AGW, when in fact such frequent extremes are expected........Ive got silence so far...

regards

From Wikipedia, Capitalism is

From Wikipedia, Capitalism is an economic system in which the means of production are privately owned and operated for profit, usually in competitive markets.

I don't see any problem with this.  If I run a business that produces widgets that people are willing to buy, there is surely nothing wrong with that.  People can buy my product, or the one next door, or any others.

I think what people object to are mega corporations, where they have a virtual monopoly.  The result is that it's unrealistic for people to buy any other widget but Mega-corps, simply because they are too big and have spent too much on advertising and have otherwise forced the other widget makers and sellers out of the market.  Their product is not necessarily better but they have 'gamed' their way into a dominant market position.

I see examples of this again and again.  Recently I needed some cables for a particular work job.  The local distributor supplied said cables, but due to poor design or manufacture, they were next to useless in their supplied state.  It turns out the manufacturer had recently changed their design, the new one being next to useless.  I attempted to locate a supplier of another brand, but it turns out that every single supplier in New Zealand that I checked (a few!) now stock just that brand, and will hence be faulty.  There used  to be more competitors in the market; now there is just the one, and they produce, at least for this particular cable design, crap.  The chance of anyone starting up a small business offering decent working versions of said cable is out of the question - taking on mega-corps ubiquitious presence would simply not be profitable.

Globalisation has just made the mega corp bigger and allowed them to produce goods cheaper in other countries.  This further distorts the playing field making it more difficult for local competition to spring up.  The problem is, that reduces the manufacturing in the country, and manufacturing is one of the few things that someone can do that is useful.  Quite literally, if we don't manufacture then we're cutting productivity.  If we're not productive, we have less value.  For a while we can make up for short falls in value by borrowing, but eventually less value will surely lead to lower standard of living.

 

Agreed, the mega corp

Agreed, the mega corp syndrome is bad.

(I do not put Apple into this category. Domination through innovation is quite different. It is domination through acquisition that is bad. It kills competition and innovation.)

The mega bank syndrome is worse.

The reserve bank system based on fractional reserve banking is worst.

As Rothbard states, "Income and wealth are redistributed to those who receive the new money early in the process, at the expense of those who receive the new money late in the day and of those on fixed incomes who receive no new money at all. "

In short fractional reserve banking is institutionalised robbery. Quantative easing is robbery of the innocent by the guilty. Where is the justice in that?

It is a dangerous addiction too. Ask those who have experienced hyperinflation.

Globalisation needs to be based on banking systems that reward innovation and enterprise and do not penalise the masses for the benefit of the central bankers and their politician fellow travellers. I would love to know where John Key stood in regard to the above.

 

 

A must

A must read

 

http://theautomaticearth.blogspot.com/

 

 

Ilargi: The August 15 trading day closed to headlines such as this: 

"[US] stocks jumped, posting the third consecutive gain and the best 3-day rally since March 2009...".

Sounds good, doesn't it? But perhaps a wee bit of perspective is in order. Financials were up yesterday, but here's what they look like over the medium term: 

  • Bank of America: 
    +7.93% Aug 15, but -22.4% in past month, -34.95% in past 3 months 
  • Citigroup: 
    +4.76% Aug 15, but -18.53% in past month, -24.71% in past 3 months 
  • Morgan Stanley: 
    +6.10% Aug 15, but -15.03% in past month, -25.74% in past 3 months 
  • Goldman Sachs: 
    +2.28% Aug 15, but -8.28% in past month, -15.79% in past 3 months 
  • Société Générale: 
    +2.06% Aug 15, but -28.53% in past month, -41.23% in past 3 months
  •  

Here's the world's biggest

Here's the world's biggest bond fund manager, PIMCO's Mohamed el Irian, saying the Eurozone will eventually jettison the weakest members.

http://www.project-syndicate.org/commentary/elerian8/English

Whichever way you look at it, the ECB – and with it Europe – is being forced into an endgame with three once-improbable outcomes. That endgame will play out in weeks and months, not quarters and years.

The first alternative is a disorderly breakup of the eurozone. Only chaos-lovers wish for such an outcome, but it is possible if core governments continue to hesitate in engaging their balance sheets; if peripheral governments abandon their fiscal-reform efforts; and/or if societies can no longer tolerate economic stagnation, high and rising unemployment, and budget austerity.

The second is the one preferred by political scientists and European visionaries: greater fiscal union among the 17 eurozone members, or, in blunt terms, German willingness to do for the eurozone what it did for eastern Germany – namely, write large checks for years to come. In return, Germany would insist on economic-governance reforms that force other eurozone members to surrender some of their national fiscal prerogatives.

The third alternative is the one embraced by several economists. It involves creating a smaller and more economically coherent eurozone, which would consist of core and near-core countries within a tighter fiscal union and more credible defenses against contagion. In the process, 2-3 peripheral economies would take a sabbatical from the euro, underwriting immediate economic uncertainty with access to a much wider range of instruments to deal with their debt overhangs and lack of competitiveness.

Although the endgame is close, it is impossible to predict which alternative will prevail. That will depend on decisions taken by politicians with low approval ratings, noisy oppositions, and inadequate coordination. Moreover, implementation will likely prove far from automatic, thereby testing the resolve of governments and institutions.

My sense is that politicians will opt for a weak variant of greater fiscal union, but that, ultimately they will fail to execute it for the eurozone as we know it today. After some considerable volatility, a smaller and more robust currency union will emerge; and, importantly, Europe will avoid the euro’s demise and a total breakdown of the eurozone.

A couple of questions. Why

A couple of questions.

Why is major QE excluded as a possibility? Even in inflation-wary Germany there are arguments in favour of it. This would give the PIIGS the devauation they desparately need.

Could any smaller currency union really include France? France is struggling already without the added problems of a sky-high currency.

Cheers

JK

Would a Euro inspired QE

Would a Euro inspired QE inflation scenario ( that aides Germany's export prices even further)  be tolerated by the USA, who, after all, are trying to out-devalue everyone already?

An ugly race to the bottom!

An ugly race to the bottom! Winner gets to sit next to Zimbabwe at the prizegiving. The Chinese'll be pretty grumpy too. And Bernard will have apoplexy as the Kiwi TWI rises to the stratospheric heights of, er, 85.

QE is only inflationary when

QE is only inflationary when not in a zero bound condition....we are in such a condition......

Im not so sure its de-value as cause inflation everywhere else from what I can see....same net effect I suppose....or maybe doble the effect they expected.....in any event they seem hell bent on not fixing the issues so it will blow.

regards

By a zero bound condition, do

By a zero bound condition, do you mean a situation where interest rates are at or near zero and can go no lower, and yet inflation is also very low? The inference being that whatever is done, there will be no inflation.

Germany will never allow the

Germany will never allow the breakup of the Eurozone, because its overwhelmingly, the prime beneficiary of the Eurozone has been Germany. Belonging to the integrated Eurozone with nation's whose economy's have been markedly weaker has meant that its currency's value has lower than it would otherwise be alone.

http://www.ibtimes.com/articles/72538/20101015/why-germany-has-an-undervalued-currency.htm 

Not to mention that the ECB has displayed an all too apparent pro-German bias in determining its interest rates decisions and being far too responsive to German pressure to keep interest rates far below that which is optimal for the economies of other Eurozone States.

"The European Central Bank (ECB) has kept interest rates in the euro area at an easy 2% for 22 months, and looks set to keep doing so well into 2005.

From the point of view of a German politician, alas, all policy choices must look bad. Membership in the euro area leaves the country monetarily at the mercy of the ECB, which seems determined to maintain a hard line on inflation, and thus to resist calls for an interest-rate cut. "

http://www.economist.com/node/3907994 

The problem with the PIIGs, is that they were lured into the Eurozone with the  mirage of permanent increases in their standard of living, but with the structural imbalances within Europe its not possible. The discussion of fiscal issues is largely redundant. Not only will the PIIGs be consigned in their roles wage arbitrage and cheap industral assembly and manufactured product to the core nations of France and Germany, but they'll lose what little remains of their national sovereignty.

http://www.nakedcapitalism.com/2011/04/debunking-the-idea-that-labor-productivity-is-the-cause-of-euro-periphery-woes.html 

And here's Richard Florida at

And here's Richard Florida at the FT describing the problems in London:

http://www.google.co.uk/search?aq=f&hl=en&gl=uk&tbm=nws&btnmeta_news_search=1&q=inchoate+rage+of+cities#sclient=psy&hl=en&gl=uk&tbm=nws&source=hp&q=inchoate+rage+of+cities+florida&pbx=1&oq=inchoate+rage+of+cities+florida&aq=f&aqi=&aql=&gs_sm=e&gs_upl=3637l4669l0l4885l8l7l0l0l0l0l192l939l1.5l6l0&bav=on.2,or.r_gc.r_pw.&fp=cff275dd15897c51&biw=1163&bih=779

Globalisation has made our great cities incalculably richer but also increasingly divided and unequal. More than youth, ethnicity or even race, London’s riots are about class and the growing divide between the classes. This dynamic is not unique to London but is at work in many of the world’s great capitals. Instead of reducing and flattening economic distinctions, globalisation has made them sharper.

Behind the headlines this is a tale of two great immigrations. On the one hand, the great global metropolises are magnets for the international super-rich on the lookout for tax shelters and shopping opportunities. On the other are less-skilled immigrants, hungry for better lives. In between are often caught local populations, left behind by fast-moving economic change.

In short there is a real danger that such riots are a feature, not a bug, of cities in the global era. Instead of a shining city on the hill, our urban centres have become divided. Left to its own devices the unbridled operation of the free market will make these divides worse. Just upping the police presence is a recipe for greater disaster. So if our great cities are to prosper, they now need a new social compact.

That entails more than the old statist recipe of public housing, public medicine, dead-end make-work jobs and public welfare, which helped to create a more or less permanent underclass in the first place. Such an approach must recognise every resident as a source of creative energy.

This means early childhood development programmes and efforts to channel young people’s talents into new urban enterprises and creative endeavours that benefit society. It must also focus on turning rapidly growing, currently low-wage, low-skill service jobs into higher-paying, more fulfilling and more productive work.

Can't think of anything

Can't think of anything good-humoured to say about this, but I commend it, and at least there are one or two positive ideas in there.

UK Deputy PM Nick Clegg is

UK Deputy PM Nick Clegg is looking at imposing a mansion tax. HT Alex

Under the Lib Dem’s so-called “mansion tax” plan, revenue lost by reducing the 50p rate – perhaps to 45p – would be recouped by imposing higher taxes on property owners.

Vince Cable, the Business Secretary, has previously suggested that a mansion tax could apply to all properties worth more than £2 million – a total of 50,000 home.

http://www.telegraph.co.uk/news/politics/8705644/Scrap-the-50p-rate-and-well-drive-through-a-mansion-tax-says-Clegg.html

And Ed Harrison asks the good

And Ed Harrison asks the good question: Who would bail out the ECB if all these Club Med bonds they're buying turn to custard

http://www.creditwritedowns.com/2011/08/central-banks-can-go-broke.html

They don't go broke, the

They don't go broke, the investors who bought the bonds do. "he who makes the rules, wins the game".

Expect massive haircuts all over the place, bank failures......and a chance to reinstitute a sane system. I wait by the phone in anticipation of the call :-)

 

ring...ring...ring...   Raf  

ring...ring...ring...   Raf   ..pick up..   :)

'Allo 'Allo.... Let's start

'Allo 'Allo....

Let's start you off on a basic course of "Monetary Dialysis"....then we'll look in a see how you go.

http://sustento.org.nz/system-cure-monetary-dialysis/

FYI Niall Ferguson writes at

FYI Niall Ferguson writes at Newsweek that China's boom may not be never ending.

Someone should tell John Key.

http://www.thedailybeast.com/newsweek/2011/08/14/china-faces-its-own-fiscal-problems.print.html

A closer look at the Chinese economy reveals that an astonishingly large part of what is going on today is investment in urban residential real estate, which is growing at more than 25 percent a year. The evidence was all around me as I drove through my sample of Chinese provinces. On the outskirts of every city I saw, there was a veritable forest of apartment blocks under construction.

These are the fruits of China’s own stimulus. When the Western economies first tanked in 2008–09, China’s communist rulers ordered the country’s banks to lend, lend, lend. The biggest borrowers were property developers and local governments.

With inflation above 6 percent and the stock market down, the new Chinese middle class has gotten in on the act. An unknowable proportion of these new apartments have been bought as investments by people who already own one or more. With new-property prices up about 20 percent in just two years, who can blame them?

Sound familiar? Yes, this looks a lot like a real-estate bubble—with Chinese characteristics. As for debt problems, Chinese bank loans were 97 percent of GDP in 2008. Now they’re at 120 percent.

All of which makes me wonder if China’s recent gloating at our misfortunes might just prove a tad premature.

" Uprising " by George Magnus

" Uprising " by George Magnus is worth a read , being sceptical of China's seemingly inevitable rise to world economic dominance .  Other emerging economies are discussed too .

....The straight-line extrapolations by Goldman Sachs are akin to the projections of the 1970's and 1980's when we seriously thought that our WW2 foes Japan & Germany would take over the world , by financial might , rather than military muscle .

Unlike India , China has huge demographic problems facing it , no democratic process , poor legal title to land and other assets , and very little English comprehension .

Some other authors argue that Russia ought not be included in Jim O'Neill's " BRIC's " , and that Turkey and Indonesia deserve a spot .

.. as such , Gummy has a list of " CIBIT's " to replace the old BRICs , as the emerging markets , the new financial powerhouses of the future  :-

....  China / India / Brazil / Indonesia / Turkey .

I prefer BICITs, nice and

I prefer BICITs, nice and tasty. CIBITs are dirty smelly things and carry desease.

BICITs it is then ! ... A

BICITs it is then ! ... A momentous day at interest.co.nz .... we will be as famous as Goldmoney Sacks .. yahoo , we're pigs in the trough too .... yippeeee !

.... years from now people will still talk about us , and the day we invented the BICITs , .. and shunted GS aside ! .... I wonder if we'll get invited onto CNBC with Becky Quick or Randy Mandy Drury ... ooooh la la

BICITs to you , good sir !

Only if we can come up with

Only if we can come up with something good for PIIGS plus Belgium and Cyprus, oh and Farnce if you want. And maybe Slovakia, tho they're a bit under the radar.

How bout a soccer

How bout a soccer club........P.B.S.....FC.

I got FIB-PIGS ,

I got FIB-PIGS , France-Italy-Belguim-Portugal-Ireland-Greece-Spain , anyone know what to do with Cyprus ? ... come on now , don't be rude !

FIB-PIGS , has a nice ring to it , and kind of sums up the EU governments & their central bankers .

it's the cure to relieve a

it's the cure to relieve a blockage..

PFIG-BISC =Progress File Implementation Group-- Banking Industry Solution Centre

 

Fortunately BIG SPICS doesn't

Fortunately BIG SPICS doesn't work. I need to get F in.

Obese Italians may be

Obese Italians may be offended by that !

And I feel I've been a bit

And I feel I've been a bit unfair on Slovakia. I made a short, very enjoyable, trip there last year, and the locals seemed pretty downbeat about prospects. But compared to most places they're doing pretty well.

One probable cause for their negativity is that they feel they've worked hard, paid a biggish price, and played by the rules, while others have cheated and partied their way though life in the eurozone.

Keep it simple and wrap it up

Keep it simple and wrap it up to EUROP- IGS

Luckily Romania isn't

Luckily Romania isn't included , because then Angela Merkel would have to come to GRIPS with the FIB  of her own making  .....

You lot are nuts... but

You lot are nuts... but fun!!!

When New Zealand , Japan  &

When New Zealand , Japan  & Zimbabwe finally accept  bankruptcy , we can go cap in hand together to the IMF under the cool & groovey moniker , New JaZZ .

We have to get our head

We have to get our head around the idea that John Key is not working for us he is working for John Key. Once you make the shift  everything makes sense for him. Not for us you understand but for him in a very direct way. In a third rate way we have allowed the state to be taken over completely by private interests. He has no real arguement for selling our dams. except of course that such a sale will benifit him. To get a handle on where he is at look again at the Hardtalk Interview. He is a member of an elite that looks down on the rest of us, he can play at being one of the people but suggest a weath Tax that would be actually fair and watch him turn. A very nasty man indeed.

Correct - He was placed into

Correct - He was placed into the fold and his rise played to perfection - or should I say the people played to perfection by the media and the fact that they so desperately wanted change.

JK is part of the elite world from which many here refuse to accept exist. He is not anywhere near being part of the programme, just being used to hang his own country out to dry, so those who are can take full control of little old "globalist experiment" NZ

Nice one John, you are a treasonist little W*anker. The other idiots in parliament are simply too stupid and self centred to see what is going on, rather like the majority of people the country, and those who like to blog.

Here's Bruce Crumley at Time

Here's Bruce Crumley at Time describing aptly what happened last night when Sarkozy and Merkel met. Just more talk.

As their advisers had warned going into their meeting, the two leaders did not propose anything sufficiently sweeping or dramatic to calm market fears over the debt crisis that has been roiling the euro zone for months. Instead, the pair said they'd table a series of initiatives they'll ask other common currency members to sign off on during coming summits. Virtually all those initiatives either represented useless doubling of rules already in place that national governments flaunted while building up excessive and prohibited debt; or called for “a veritable government for the euro zone” requiring the kind of surrender of national decision-making on economic and financial matters that Sarkozy and Merkel themselves have long rejected as an infringement on their sovereignty. The result was both leaders not so much fiddling as Rome burned, but rather blowing smoke as the euro continued to be engulfed in the flames of debt crisis.

Read more: http://globalspin.blogs.time.com/2011/08/16/merkel-sarkozy-summit-proposes-measures-already-in-place-and-others-neither-leader-wants/#ixzz1VFEKqi2M

SandM have managed to prolong

SandM have managed to prolong the pain, so to speak.

Colin Meads isn't really

Colin Meads isn't really promoting a complex financial product.

It looks as if NZ Carbon Farming are offering cash up front $725/ha for 60 NZUs which is the one-off entitlement for pre-1990 forest. At current prices that is worth around $900/ha but NZ Carbon Farming will do the paperwork for registering the land with MAF. The NZU price is around $15 at the moment but it has been over $20 in the recent past. 

The land owner would likely make more money by retaining the credits themselves but they may not want the hassle of registering or the pricing risk when selling.

 

So how does any farmer know

So how does any farmer know they're getting a fair price for their carbon?

Will Colin Meads be able to tell them what that NZ$725/ha works out in terms of the carbon price per tonne?

I can't see anywhere on the website explaining what that NZ$725/ha works out in market price terms.

cheers

Bernard

As compensation to the

As compensation to the potential costs of deforestation and or reduction in land value due to this regulatory encumbrance of pre-1990 forest land the Government will allocate:

  • 60 units/ha if they have owned the land since before 31st October 2002.
  • 39 units/ha if they have purchased the land on or after 1st November 2002.

so the offer is about $12.17/NZU. I thought that was a pretty low-ball offer but looking at this price series it might not be in the short-term:

http://hot-topic.co.nz/wp-content/uploads/2011/08/WestpacCarbonprice2.png

A land owner could alway hold on to their credits as there will presumably be increasing demand.

Why does it all sound like a

Why does it all sound like a tax on the poor handing money to the rich land owners. What a joke. Is that all it is. Pathetic

Iain : I have this feeling in

Iain : I have this feeling in my water that Bernard knows full well who you are !

.. but knock me down with a feather , you've just written summit that a Bumper-Sticker-Boy can both read and understand .

Well done Parksy , a slog of 5 years , but you got there . Excellent .

Iain/GH My water also tells

Iain/GH

My water also tells me I know...

cheers

Bernard

AAA ! ...  OMG , surprise

AAA ! ...  OMG , surprise surprise ... those skilled and knowledgeable folk at Fitch ( the little brother of the big 3 USA rating's agencies ) have confirmed America's credit rating at one notch below Warren Buffet's AAAA !

.. and are we surprised , after the public pillorying that those prize fools at S&P have rightfully received for their hysteric down-grade of Uncle Sam .

We have a split decision , folks ... those Moody feckers have the crucial vote , which way will they jump , .... shit in the hand of the debt fuelled steroid monster  that feeds you , .. or kiss it's big kahunas with appeasement & gratitude for your sheltered existence  .... hmmm ?

That's pretty sad about Ron

That's pretty sad about Ron Paul, he definitely seems like one of the more honest politicians in the US.

It shows the ridiculously outweighing the influence Fox News has in the States.

I see Channel 3 etc looks like it might get bought out by Sky, which is also owned by News Corp, just what we don't need, a bias media corporation sticking it's beak into areas it shouldn't be.

Murdoch's are simply not fit

Murdoch's are simply not fit and proper people to own media assets in New Zealand.

Rupert Murdoch ‘Confused,’ Misled U.K. Parliament, Firm Says

http://www.bloomberg.com/news/2011-08-16/rupert-murdoch-was-confused-mis...

The entire SKY business model is based on a monoply on live sport, sooner rather than later the world will catch on and regulate to either aknowledge that there is no real market or regulate to try and create such a market. Any which way the Murdouch's will be toast as their companies are really a reflection of thier political influence, once the influence is lost how long before the monopolies are lost as well. Of course in the fabulous world of New Zealand where we have become followers rather than leaders, it will all take a lot longer to play out.

RE4   Some of us have been

RE4   Some of us have been pointing this out, for a while:

http://www.odt.co.nz/opinion/opinion/34180/hard-times-here-stay

cheers raf - at least someone notices    :)

Excellent piece :-)

Excellent piece :-)

Yes Good link

Yes Good link PDK.......keeping in mind we will all be swimming in the same pool and as always there will be those clambering on top of us to get the advantage of .. "clear air" ....while continuing to foul it below them....

And the Train it won't stop comin

No way to slow down....

The U.S election is an Obama

The U.S election is an Obama walkover because no serious republican candidate is game to risk losing a presidential election. To do so is a one way ticket to the political wilderness. Palin etc are posturing/campaigning, and watching the polling, and would run if they felt it was winnable, but really they know the name of the game Is 2016.

Pretty much the same as whats going on in NZ. Labour can't win under Goff. He's a joke. But no leadership coup in sight. This election is unwinnable. Better to let Goff lose it, than replace him now and damage a potential leader with an election loss.