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- Disappointing US data 5
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Wednesday's Top 10 with NZ Mint: Finally an RBA board member hates a high A$; Latin America fights back in currency wars; Afghanistan's hopelessness; What Germans really think; Dilbert
Here's my Top 10 links from around the Internet at 11 am in association with NZ Mint.
I welcome your additions in the comments below or via email to firstname.lastname@example.org.
I'll pop the extras into the comment stream. See all previous Top 10s here.
My must read today is #4 on the problems in Afghanistan.
1. Finally - Bloomberg reports an incoming member of the board of the Reserve Bank of Australia is worried about the unnaturally high level of the Australian dollar and what that's doing to the Australian economy.
It's about time someone official starts talking about the risks of a high currency for both Australia and New Zealand.
We are being beggared by our neighbours as they print and hope.
Our jobs are being exported to those countries that do print.
One of the flaws of this sort of 'every man for himself' globalisation is that it ends up with mass migrations of people.
That's not sustainable for anyone.
Here's the new RBA board member via Bloomberg. It would be great to hear our board members talking like this. In public.
“There’s too much froth in the Australian currency,” which economic fundamentals indicate ought to be worth 90 to 95 U.S. cents, Ridout, outgoing head of the Australian Industry Group, said in an interview in Sydney yesterday.
She said “speculative” buying stoked by rate differentials had spurred the local dollar, which traded at $1.0791 late yesterday.
2. Latin American intervention - Brown Brothers Harriman Emerging Markets specialist Win Thin points via Credit Writedowns to a range of resource-rich South American nations preparing or already engaged in currency market intervention to try to stop their currencies racing away out of control as the print-and-hope nations of the north try to beggar-thy-neighbour their way to glory.
Brazil, Chile, Peru and Columbia have all acted.
3. 'Targeted subsidies' - BusinessWeek reports that China is offering selected lending support for first home buyers as it grapples with a fast slowdown in the housing market there.
Watch this space.
Many of the apartment buyers in China have been investors rather than first home buyers and now prices are way out of the range of owner occupiers.
China’s central bank pledged support for first-home buyers as a crackdown on real-estate speculation threatens to trigger a property slump in the world’s second- biggest economy.
Officials will increase support for construction of affordable housing and ensure that “loan demand from first-home families” is met, the People’s Bank of China said on its website yesterday.
4. NZ should be out of Afghanistan - I've long held this view, but here's another piece of evidence from within the US military.
It's reportage from a serving US Colonel who has just returned from a second tour there. It makes for compelling reading.
I spent last year in Afghanistan, visiting and talking with U.S. troops and their Afghan partners. My duties with the Army’s Rapid Equipping Force took me into every significant area where our soldiers engage the enemy. Over the course of 12 months, I covered more than 9,000 miles and talked, traveled and patrolled with troops in Kandahar, Kunar, Ghazni, Khost, Paktika, Kunduz, Balkh, Nangarhar and other provinces.
What I saw bore no resemblance to rosy official statements by U.S. military leaders about conditions on the ground.
Entering this deployment, I was sincerely hoping to learn that the claims were true: that conditions in Afghanistan were improving, that the local government and military were progressing toward self-sufficiency. I did not need to witness dramatic improvements to be reassured, but merely hoped to see evidence of positive trends, to see companies or battalions produce even minimal but sustainable progress.
5. Skewed incentives - FTAlphaville points to a useful discussion by ECB board member Benoit Coeure about the role of capital flows into America after the Asian crisis of the late 1990s and how it helped create the problems we have now.
With the US dollar still reigning supreme, the United States became a hub for the recycling of the liquidity that was available globally .
All of a sudden, capital was flowing uphill, from emerging to advanced economies, a puzzle famously known as the “Lucas paradox”.
Clearly, however, the surge in capital flows to the US was mainly driven by the desire of the official sector in emerging-market and oil-exporting economies to increase their war chests of reserves and insure against global shocks, and not by utility-maximising decisions of their private sector.
Nevertheless, those inflows contributed to the decline in long-term interest rates and increased risk appetite in many of the advanced economies. The self-reinforcing interaction between risk appetite and liquidity came back with a vengeance.
6. Where is our Paul Krugman or Nouriel Roubini? - I'm late to this story, but well worth a link. Chris Barton at the NZHerald has done a good job of asking why so few academic economists in New Zealand have roles as public critics or commentators.HT Eric Crampton for alerting me to this.
In 2009 Victoria University Management School senior lecturer Todd Bridgman, assisted by a two year, $170,000 Marsden Fast-Start grant, went looking for public intellectuals. He reasoned that the global financial crisis was a topic that should have provided plenty of fodder for comment.
Bridgman found a variety of experts did speak out about the issues behind the crisis but they were largely journalists or economic consultants from think-tanks and banks. Academics were mostly absent. "I have concluded that, despite being a significant reservoir of knowledge in relation to many matters at the heart of the global financial crisis (GFC) the public voice of our universities has been faint," says Bridgman in Policy Quarterly. "Universities claim to be active public contributors and relevant to the communities which support them, but, at least in the case of the GFC and its effects on New Zealand, these claims sound like empty talk."
The faint voice of academics seemed odd, especially in light of the Education Act 1989, which requires universities to "accept a role as critic and conscience of society". Bridgman found some reasons why: universities, made over by the market reforms of the 80s and 90s, did little to encourage the critic and conscience role; academics believed making regular public contributions would harm their careers; taking a public role was time-consuming, meaning less time for publishing research in academic journals, which are vital to career advancement.
7. How much printing there has been - The ECB is preparing for its second bout of lending to European banks.
Here's a useful chart courtesy of Zerohedge showing how much the balance sheets of the European Central Bank (EA), the Bank of England the US Federal Reserve have grown in recent years.
8. What the Germans really think - Der Spiegel has written an editorial (helpfully in English) that it's time the Greek farce ended and a proper 'Marshall plan' paid for by German taxpayers be put in place.
Perhaps, the Greece rescuers on both sides of the negotiating table should try being honest for a change. Here's the truth: If the country is to lastingly reduce its mountain of debt and, at some point, be able to borrow money on the capital markets again, then it needs a comprehensive debt haircut. In other words, it needs to go bankrupt.
And it's not just private creditors who will have to forego a large part of their outstanding Greek debts. It is also other European countries and the European Central Bank. That would be expensive for taxpayers across Europe, and it would also be economically risky. Indeed, no one knows what consequences a Greek bankruptcy would have for other crisis-ridden countries like Portugal, Ireland or Italy. But at least it would be an honest solution.
Of course, things wouldn't stop there. The euro-zone states would also have to build a bigger firewall around the remaining crisis countries in order to prevent contagion. They would have to help some banks that get into trouble as a result of a debt cut. And they would have to provide Greece with a real opportunity to get back on its feet and start growing under its own steam -- in other words, a kind of Marshall Plan.
All this would be very expensive, and German taxpayers would also be forced to do what they have feared from Day One -- which is to pay for Greece. But this solution has two major advantages. The payments would be limited, and they would actually help Greece.
It is time for politicians to admit that their carrot and stick strategy has failed. The idea that the country can be freed from its debt quagmire though austerity programs and aid pledges tied to conditions just isn't going to work. It won't even work if private creditors forgive part of the country's debt.
9. Totally irrelevant video from amusing music video specialists OK GO - Some people did a lot of work. And the Holden Barina gets a real workout
10. Totally Jon Stewart on Donald Trump's endorsement of Mitt Romney. He compares the Donald to Nemo.