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Thursday's Top 10 with NZ Mint: The amazing Beppe Grillo; Chinese political turmoil deepens; Europe's slow moving train-wreck; China's political tensions; Dilbert Dilbert

Posted in Opinion

Here's my Top 10 links from around the Internet at 2 pm 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.

My must read today is #5 from Nouriel Roubini on the European crisis.

1. China's political mess - Reuters reports that China's fractured leadership is now considering delaying a party congress where a once-a-decade leadership transition was supposed to have been confirmed.

The Bo Xilai scandal of recent months has highlighted just how divided China's leadership is.

It also suggests China may not be able to act quickly and decisively to restart its economy.

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That's a problem for New Zealand and Australia.

China's very quick actions in late 2008 and early 2009 helped cushion the effects of the Lehman collapse for us.

Now the European crisis is slowing growth in China and the political leadership are busy fighting over who gets the top jobs...

Here's Reuters:

Any delay in the congress, no matter the official reason, would likely fuel speculation of infighting over the remaining seats in the nine-member politburo standing committee which calls the shots in China.

The makeup of those remaining positions could in turn influence the ability of the incoming new president, Xi Jinping, to forge a consensus among those immediately below him on how to run the world's second-largest economy and a military superpower.

Delay could also further unnerve global financial markets whose perception of Chinese politics as a well-oiled machine has already been shaken this year by the extraordinary downfall of an ambitious senior leader, Bo Xilai, in a murder scandal.

2. Greek political mess - BBC Newsnight Economics editor Paul Mason has a useful blog here on the political mess in Greece.

The problem is, time marches on. And the Greek economic story is not just a question of designing a strategy, it is an execution story: that is it relies on relentless pursuit of goals and targets – whether they’re ND/PASOK goals or SYRIZA/KKE goals – by a civil service and a set of ministers who can actually rule. It will be very hard for a technocratic government to pull the levers of power because so much of Greek politics has been based on patronage.

So we are back to the same problem that has dogged Greece. It cannot stay in the Euro without abiding by the rules. And the rules, as currently designed, will force the economy into a downward spiral and destroy social cohesion. Unless the EU/IMF take some kind of initiative that allows some form of viable coalition to emerge to implement some kind of “Plan B” you will sooner-or-later have a debtor-led default on your hands and most likely a prolonged social conflict.

3. The amazingly successful Beppe Grillo - The leader of the new Five Star Movement in Italy, comedian Beppe Grillo, did surprisingly well in local elections in Italy over the weekend.  In some places he got almost 20% of the vote.

He says Italy should leave the euro and default on its debts...

Here's the Guardian:

"We will see you in parliament," he tweeted, suggesting his Five Star Movement party will field candidates in national elections in 2013.

The comic campaigns on green issues, fights corruption and has recently criticised Mario Monti's unpopular tax hikes, as well as claiming Italy should ditch the euro. His party took 14% of the vote in Genoa, 9% in Verona and 19% in Parma, where it forced the mainstream Democratic party into a runoff.

In all those towns, Grillo's mayoral candidates trounced Silvio Berlusconi's Freedom People party, which was subjected to humiliating defeats in its first electoral contest since the former prime minister stepped down to make way in November for Monti's technocrat government, which did not stand in the elections.

4. The heat in China is building - The Chinese Government is trying very hard to censor the extremely active Sina Weibo micro-blogging service after a wave of rumours cascaded through its blogs as the Bo Xilai scandal developed

Here's WSJRealtime with the detail:

What constitutes “sensitive” content? Of all the questions looming over China’s Internet users, this one is undoubtedly the most difficult to answer. With new terms and topics added to the censors’ blacklist on what feels like a daily basis, even the country’s most savvy and experienced social media veterans find themselves wandering — often unwittingly — into verboten territory.

Indeed, the censors themselves sometimes seem to be struggling for clarity – a phenomenon neatly illustrated in recent months by the constant blocking and unblocking of social media searches related to the scandal around recently fallen Chongqing Communist Party boss Bo Xilai.

5. 'Get ready for the Spanish bailout' - Here's Nouriel Roubini's view on the slow-moving trainwreck that is Europe's debt crisis.

No one can pretend to know whether Spain is illiquid or insolvent without gauging the size of the black hole that is the country’s banking sector. The Spanish government is finally starting to do this: Bankia and other banks are reportedly set to receive a capital injection from Madrid. With the Spanish economy contracting sharply and with unemployment soaring, it was inevitable that the government had to bail out the banks. But this only deals with one piece of the puzzle. Without growth, the Spanish sovereign will need a bailout as well.

Spain’s credit boom peaked in 2008 when the supply of cheap, external finance began to fall sharply. Four years later, Spanish banks’ asset quality continues to plummet. The sector will require €100-250bn in recapitalisation later this year to maintain a 9 per cent core tier one capital ratio, the minimum stipulated by the European Banking Authority. In the meantime, there are concerns about the capacity and appetite of Spanish banks to support the sovereign, particularly amid rating downgrades and deposit withdrawals.

6. 'Oh my god, we've gotten in bed with the Vampire squid' - Henry Blodget writes a detailed piece here at his BusinessInsider about how Goldman Sachs lost the plum deal to be the lead banker in the Facebook IPO.

A fascinating insight into the world of Wall St Investment bankers.

The botched deal was a major embarrassment for Goldman. But more damaging to the firm’s chances of winning the Facebook IPO was the public animosity for Goldman that it stirred up again.

Facebook’s executives didn’t blame their Goldman bankers—led by George Lee—for the fiasco. But they were taken aback by the public hatred for Goldman.

The reaction at Facebook’s headquarters, one observer says, was basically this: “Oh my god, we’ve gotten in bed with the vampire squid."

7. Beggar thy neighbour until the music stops - Here's Reuters with the latest talk that the European Central Bank will soon have to intervene in currency markets to devalue the Euro.

The nation with the last currency standing gets to hold all the debt...

"My forecast is ultimately the ECB, in an attempt to save the union, will lower the euro. We could see the euro going down to $1.10 or maybe even parity, as a last-ditch effort to save the periphery," he said.

8. Nice summary - Washington economist and author Thomas Palley has a nice summary here on his blog of the different views about the causes (and therefore solutions to) the Global Financial Crisis.

For proponents of the destruction of shared prosperity hypothesis the policy response is fundamentally different. The challenge is to overthrow the neoliberal paradigm and replace it with a “structural Keynesian” paradigm that repacks the policy box and restores the link between wage and productivity growth. The goal is to take workers out of the box and put corporations and financial markets in so that they are made to serve the broader public interest. That requires replacing corporate globalization with managed globalization; restoring commitment to full employment; replacing the neoliberal anti-government agenda with a social democratic government agenda; and replacing the neoliberal labor market flexibility with a solidarity based labor market agenda.

Managed globalization means a world with labor standards, coordinated exchange rates, and managed capital flows. A social democratic agenda means government ensuring adequate provision of social safety nets, fundamental needs such as healthcare and education, and secure retirement incomes. A solidarity based labor market means balanced bargaining power between workers and corporations which involves union representation, adequate minimum wages and unemployment insurance, and appropriate employee rights and protections. Lastly, since the neoliberal model was adopted globally, there is need to recalibrate the global economy. This is where the issue of “global rebalancing” enters and emerging market economies need to shift away from export-led growth strategies to domestic demand-led strategies.

The critical insight is that each perspective carries its own policy prescriptions. Consequently, the explanation which prevails will strongly impact the course of economic policy. That places economics at the center of the political struggle as it influences which explanation prevails.

As of now, the economics profession is split between the hardcore and softcore neoliberal positions. However, that can change under the pressure of an ugly reality that produces mass political demand for change, as happened in the Great Depression of the 1930s which provided an opening for Keynesian economics. The only certainty is change will be politically opposed as powerful elites and orthodox economists have an interest in preserving the dominance of the existing paradigm by ensuring their explanation of events prevails.

9. Abandon the efficient market dogma - That's the recommendation from (of all people) the Global MD for McKinsey via the Harvard Business Review.

Obviously much more needs to be done to foster a capitalism that is truly patient, principled and socially accountable. The list stretches from adopting an investor relations policy that concentrates on fostering a long term investor base and developing better metrics to tackling, with guidance from active owners, some of the flaws and inequities in executive compensation. We intend to continue exploring those issues--and the solutions required to better address them--in our ongoing research.

But the critical first step, we're convinced, is for more and more institutional investors and independent board members to abandon old orthodoxies and embrace a new belief: the belief that through greater engagement and more active ownership/stewardship they can enhance the market's efficiency while delivering greater value creation for stakeholders and shareholder alike.

10. Totally Jon Stewart on Romney vs Obama and a fight between rats in a bag

 

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?

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13 Comments

Closer to home. Reading the

Closer to home.
Reading the signs of the time - the world is changing massively in front of our eyes and there is still no contingency plan from the government made public.
For how much longer do we tolerate the Key administration carry on with business as usual and later blame the worldwide situation for the mismanagement by the government of our economy ?
 
Stop megalomania by the Key government.

Unemployment of 18 - 24 year

Unemployment of 18 - 24 year olds at 40-50% in provincial areas. Incl grads. Lucky we have Australia on our doorstep. 2nd kid about to move to Aus.

Send them over Aussie needs

Send them over Aussie needs the workers
Since JK's giving free birth control to DPB's, why not give Dole bludgers a one way ticket to WA
http://online.wsj.com/article/BT-CO-20120509-725713.html

Excellent idea. We could all

Excellent idea. We could all cross the ditch. Leave NZ to the anti mining anti business pro beneficiary, green, ppta, - they could print their own money.....

All half a dozen of us would

All half a dozen of us would do quite nicely without you all.

And house prices would drop

And house prices would drop considerably  -   6 greenie/ppta/anti-progress/luddites/SueBradford-supporters/funnymoney/ indiiduals  could live in 1,000,000 homes with no services .... 
Who could you blame then for your lack of prosperity ? 
Oh yeah  -  it would be those darn BabyBoomers  -   left you behind (again)
 

No sense of humour. Actually

No sense of humour. Actually I would take great joy in evicting Sue Bradford. As for no services the people you are digging at from these forums would improvise quite nicely thank you, and the net result would be be significantly better than the miserable lot you would inherit.

.

.

Sorry,  you keep Ms

Sorry,  you keep Ms Bradford   -    put her in a DoC hut on the Coast  (with 3 screaming kids that she can't smack).

Nooooooooooo!

Nooooooooooo!

If you ain't mining in

If you ain't mining in Australia, she's all contraction.
 
Which suggests that training as a midwife might be the go.
 
Underneath the humour, Mortgage Belt sounds worried. They usually cast round a kind of scatter-gun blame-shift, do the folk who have found their religion wanting.

Those of you with an interest

Those of you with an interest in oil will find an excellent post on Norway's production here:
http://www.theoildrum.com/node/9166#comments_top
As recently as 2001 Norway was producing a whopping 3.1 million barrels per day of oil - at the time close to 5% of total global production. However as the more enlightened have come to realise oil fields deplete and in just over 10 years that production has halved. That is despite huge investment in exploration by both the state owned oil company and a host of others.
Its not that new oilfields have not been found - they have and an amazing 16 new fields are coming on line in the next few years! The only problem is - we tend to find the big supergiant fields first and the smaller fields coming on line cannot compensate for the loss due to depletion from existing fields. Figure 5 in the article describes this beautifully. Despite their best attempts total production will continue to fall in Norway.
Where Norway goes so goes the North Sea. Where the North Sea goes........(you get the idea).

China will not postpone it's

China will not postpone it's upcoming Congress. Any delay will be seen as weakness not only by foreigners but by it's own citizens, and that will be fatal to the party and its leadership.
 
Despite the best wishes of foreign journalist and political observers, China is not in a political crisis, and the Bo Xilai scandal will be settled quickly and quietly (by western standards).
 
The present Economic situation in China is even more grim than its political situation, as the goverment do not seem able to stem the sharp decline in the economy (yes the Chinese economy is slowing sharply despite what CNBC says). This is a more important task for the CCP than the PSC composition (which is already complete, by the way)
 
The CCP has to set the line up so that the newcomers can take charge of the serious economic slowdown (or take the blame) for the rest of the decade.