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Monday's Top 10 with NZ Mint; New tax, higher investment; failing meritocracies; them is us; UK pound overvalued; Strategy; something truly unique; Dilbert

Posted in Opinion

Here's my Top 10 links from around the Internet at 10:00 am today in association with NZ Mint.

Bernard will be back with his version tomorrow.

We welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

See all previous Top 10s here.

1. New tax, higher investment
Mineral exploration spending in Australia, the world’s biggest iron ore exporter, reached a record in March and has risen 35% since a new policy to tax carbon was unveiled last year, the government said. See story at Bloomberg.

Spending rose 12% to a record AU$1.086 billion (NZ$1.4 billion) in the March quarter and the investment pipeline in the resources industry reached an estimated AU$500 billion on demand from Asia, Treasurer Wayne Swan said in his weekly economic note yesterday.

The tax on carbon emissions, starting July 1, will reap about AU$6.5 billion over two years from the country’s biggest mining companies including BHP Billiton.

"It’s yet another reality check for those who try to talk down the outlook for our resources sector or make ridiculous claims that important economic reforms are hurting investment," Swan said. "Asia’s rise will create demand for a lot more than just our iron ore and coal."

2. Many losers, one winner
The EU has rules about deficits and balances. In the future, the sanctions for breaking the rules will be a lot tougher than in the past. As we have noted here before, Germany also has a deficit that exceed EU rules. But low interest rates on German bonds are translating into billions in reduced costs savings. Now economists have calculated Germany should be able to balance its budget by next year - something that is likely to increase criticism of Germany's position and management of the current crisis. It's profiting from other's misfortune.

The European sovereign debt crisis has plenty of losers, but arguably one clear winner: Germany. Demand for German bonds, seen as the safest haven in the euro zone, has pushed Berlin's borrowing costs so low that some investors are effectively paying Germany for the privilege of lending it money.

Now German economists have calculated that Germany could reach its cherished goal of a balanced budget by as early as next year, as a result of its bargain borrowing costs - provided, that is, the euro crisis doesn't escalate.

According to calculations conducted for the Financial Times Deutschland by the private research company Kiel Economics, a spin-off of the respected Kiel Institute for the World Economy (IfW), Germany will save a total of around €15 billion ($19 billion) in 2011 and 2012 as a result of low interest rates on government bonds. Berlin will save at least €10 billion in 2012 alone, the economists calculate. "We are expecting a balanced budget in 2013," the IfW's Jens Boysen-Hogrefe told the Thursday edition of the newspaper.

3. How meritocracy is failing us
Chris Hayes has written a provocative new book Twilight of the Elites that blames the failure of elites for our woes.  The elites who run things, having advanced to the top of various hierarchies, are performing miserably he reckons. Conor Friedersdorf reviews the book, and while he takes issue with some of Hayes' argument, he offers some more 'practical' options. Yes, it's American focused but much will resonate here.

I present them for debate, the doable right beside the implausible thought experiments:

•Write simpler regulations. Complexity advantages the people at the top, who are always best positioned to exploit its vagaries. As Kevin Drum once put it, "Dumb, blunt rules are the only kind that can work in the playpen of modern finance. We simply don't understand the world well enough to pretend that we can regulate things in minute detail, and we sure as hell don't have regulators who are either smart enough or can move fast enough to stay ahead of the rocket scientists trying to outwit them. That's not just impossible in practice, it's pretty much impossible even in theory. It's just plain impossible. But dumb-as-rocks rules about capital requirements and trading limits and collateral requirements and term structures? Yeah, that can work."

•End the War on Drugs, the most extreme example of rich and poor being punished differently for the same behavior.

•One way elites "pull up the ladder" is through credentialism. So how about doing away with the many unnecessary professional licensing laws that disproportionately hurt the economic prospects of the poor?

•Tax test prep courses, and use the proceeds to subsidize test prep for anyone eligible for free school lunch.

•Move the Supreme Court to Omaha, Nebraska, or Salt Lake City, Utah, or Portland, Oregon. And transition to an e-Congress, so that House members spend more time in their districts, being required to cast votes from among the people they represent. One way to decrease the social distance between elites and citizens is to better disperse the elites among the people.

•Stop subsidizing college tuition. Instead, take the total sum spent on that enterprise and divide it equally each year among all graduating high school seniors, who can use it for more education, trade school, or more professional development as they see fit.

•Stop subsidizing mortgages.

•Privately funded media does a great job covering rich people culture. Why should NPR do the same? Publicly radio and television ought to be given a mandate to cover, serve and seek programming feedback from the lower reaches of American earners and the long term unemployed.

4. The mystery of the sinking South Pacific Islands
As every primary school child knows, global warming is raising the ocean levels and the best evidence is flooding Pacific Islands. Pacific prime ministers appeal at the UN for help and compensation. The only problem is that other islands (New Zealand ?) don't show coastal flooding. What gives? Perhaps the narrative is wrong. Perhaps its something much more fundamental. Spiegel Online has one reason based on some French researchers: This image tells the story.

5. 'we have seen the enemy, and them is us'
John Fountain has looked at the kitchen restrictions in Christchurch as it struggles with supplying enough affordable accommodation in the quake-recovering city and he shakes his head. What are they doing? He compares it to Vancouver, a city rated far higher in livability than Christchurch and wonders why they don’t have such petty restrictions.

How foolish are these myopic and unnecessary policies about internal or external secondary suites for residential properties? It’s really a matter of demand and supply. Give a solo parent or family with small kids, young single professionals, older retirees, or migrant trades persons and their families, a self contained two bedroom apartment attached to an existing, beautiful home in a pristine residential area close to schools, parks and restaurants/shops  - think Ilam, Merivale, St Martins, Burnside, Sydenham, Riccarton, Beckenham, Cashmere, Lyttleton, Governors Bay, Diamond Harbour, Addington, St Albans , etc – and the demand soars. And from Vancouver’s experience, so does the supply. The economic logic is compelling. An established couple whose children have moved on, with a four – six bedroom home in a prime residential area could spend perhaps $10,000- $40,000 adding in separate kitchen, bathroom, laundry, and/or living space to their existing home. Their insurance company is happy to extend their existing policy to the new extension – completely the reverse of any other form of new residential construction in Christchurch.  An unfurnished unit in a desirable area might be rented for between $200-$300 a week, more for a furnished unit. That’s between $10k and $15k return a year on a $10-$40k investment! And of course that rental income stream and insurance on the underlying asset keeps the banks happy lending on such small scale projects.

To the scare mongers who would cry that such a change would lead to the destruction of local family residential neighborhoods in “old” pre-earthquake Christchurch , I can only say, get real. It’s already perfectly permissible in the City and Banks Peninsula plans to have in any and every residential house up to four paying guests for tourists, visitors, home stay, etc no matter whether they have a family connection or not, no matter whether they stay a week, a month or a year. Do you really think that by asking them to cook for themselves you are going to destroy neighborhood values? Just what interests are you paternalistically trying to protect in a City trying to re-invent and rebuild itself? Moreover, visit Vancouver, year after year rated in the top 3 most desirable cities to live in in the world . The beauty and social diversity of the wide range of residential neighborhoods in Vancouver testifies to the power that a properly (less) regulated market in secondary suites has for helping to solve rent crises and accommodation shortages.

And also from John Fountain, check out this stunning video ...

6. Restrictive labour market rules
Close families and flexible labour markets don’t go together. That’s the conclusion of a fascinating paper by a quartet of transatlantic economists. Their work should be required reading for all European politicians and for the economists and pundits around the world who seek to advise them.

One truth universally acknowledged in Europe today is that the countries of the south need to overhaul their labor markets: Rigid rules on hiring and firing and on the minimum wage are blamed for the high unemployment and subpar economic growth in these states. Reuters Chrystia Freeland has been reviewing the work:

One reason culture matters so much is that it is remarkably persistent. For a civilian, one of the most striking findings in the paper by Giuliano and her colleagues is the correlation between family patterns in the Middle Ages and current desires for labor market regulation.

Your country’s family structure centuries ago influences how you feel about the minimum wage and severance rules. And the power of culture persists even in immigration. Giuliano and her colleagues found that the attitudes and the economic circumstances of second-generation immigrants to the United States were shaped by the nature of family relations in their countries of origin – “today as well as 70 years ago, immigrants coming from strong family ties societies tended to have lower mobility rates, lower wages and a higher level of unemployment.”

These findings are most relevant to Europe and its raging debate about labor rules. But they also make interesting reading in the United States, where the most ardent advocates of liberal labor markets are also the most vocal defenders of family values. Led most recently by the scholar Charles Murray, the American right has been lamenting the decline of those family values within the white working class. Perhaps the unregulated labor markets that conservatives also champion are partly to blame.

7. On the cusp of something truly unique
In 1977 the US launched a pair of satellites that have been stunningly successful. Now one of them is about to become the first earthly thing ever to leave our solar system. It's an amazing moment in human endeavour. More from Rebecca Rosen:

It's hard to overstate how wild an accomplishment this would be: A machine, built here on Earth by the brain- and handiwork of humans, has sailed from Florida, out of Earth's orbit, beyond Mars, beyond the gas giants of Jupiter and Saturn, and may now have left the heliosphere - tiny dot in the universe beholden to our sun.

8. Is the UK pound overvalued?
Swede Stefan Karlsson thinks it is.

One of the more bizarre developments in the recent debt crisis is that government bonds from one of the countries with the most messed up public finances, Britain, has been considered a "safe haven", ignoring that not only have Britain a large debt and deficit, but it has also a central bank that relentlessly tries to lower the value of its currency, something that also means that anyone stupid enough to buy British bonds will see the value of their investments reduced.

9. Do we have the right strategy?
Can we win big in agriculture? We've assumed so forever, but actually it seems doubtful, as Michael Parker points out in his book, The Pine Tree Paradox. (We are serialising it here » ). Anything we do well can be copied and done bigger by others. For example, Australia is targeting similar food exports to Asia as New Zealand. Goodman Fielder's Meadow Lea brand has been a big hit in Asian markets. Australian's want to capitalise on that success.

Goodman Fielder's chief executive, Chris Delaney, talks equally about investing in Asia, not just exporting Australian-made products.

''You can't just rely on exports, it has to be a combination of exports as well as investment in those markets to service that consumer properly,'' he says.

Delaney says the Asia-Pacific business is Goodman's fastest-growing business, representing about 15-20 per cent of earnings, albeit dominated by commercial rather than retail sales. Goodman, now 10 per cent-owned by the Singaporean palm oil giant Wilmar International, sells shortenings and margarines ingredients in China under its Pilot brand, and has a commercial fats and oils joint venture in Indonesia.

But there is growth in Goodman's retail segments, too. Particularly successful have been Meadow Fresh dairy products made in New Zealand, sold in 150 Walmart stores across China, as well as the Meadow Lea spreads sold throughout the region.

Without downplaying the challenges for branded food processors such as Goodman at home, Delaney has no doubt that ''if we are doing the right things to invest in quality and innovation, Asia could be a significant opportunity for food manufacturers and food companies based in Australia''.

10. The last laugh
Inflation is dead for the foreseeable future. But what will happen when it reappears? Will everything 'go up'?

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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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.

11 Comments

Are these problems we cannot

Are these problems we cannot see or feel - finally leading to the end of the humanity ?
 
6.4 earthquake near Fukushima today.
http://tsunami.geo.ed.ac.uk/local-bin/quakes/mapscript/demo_run.pl
 
A nation living in trance.
http://enenews.com/yamamoto-if-another-big-earthquake-happens-it-will-be-the-end-of-this-country-video
 

No ones listening Kunst.  The

No ones listening Kunst.  The mighty USSR threw nearly a million people at Chernobyl and built a sarcophagus. Tepco and Jap Govt, ZIP. Ah hell, maybe eating and breathing plutonium fleas wont be so bad after all.  The Euro keeling over? China slowing down? Our dollar zipping back up and over 80c? Pretty minor stuff when you understand what the dna of our world has to withstand now.
Come on Bernard give us a meaningful rundown on 3 meltdowns, and an unsteady fuel pool...all sitting on the edge of our pacific ocean, on some of the unsteadiest plot of dirt there is.  I dare ya

> 5. Someone (govt/ccc) hire

> 5.
Someone (govt/ccc) hire a cruise liner and park it in lyttelton for instant accomodation with doctors, shops, cinema, laundry etc... (not to mention useful low risk prison for the future).
Unlike the "High Quality NZ Houses" they will "build" in Christchurch, that just meet the ciminally low minimal insulation standards of NZ PLC, it will be warm and reduce the stain on our healthcare system with ill people that live with contant cold and mould in winter; and have to botch the build up using air recycling systems to try to remove the worst of the mould.

#2 "But low interest rates on

#2
"But low interest rates on German bonds are translating into billions in savings"
Wow, what a great way to save. Think i'll borrow heaps at low interest rates and the savings can be for my retirement.

#2 David do you mean "reduced

#2
David do you mean "reduced costs" rather than savings?

good point. I have changed my

good point. I have changed my copy.

Great to see John Fountains

Great to see John Fountains views on Christchurch housing getting an airing on Interest Co NZ Top 10.
 
 
The issue is “full on” in The Press today….
 
 
Todays The Press......the wailers from the poverty industry at it.....again.....
 
Government To Look At Christchurch Housing Crisis | Stuff.co.nz
 
Gerry Brownlee Downplays Christchurch Housing Crisis... | Stuff.co.nz
 
 
Hugh Pavletich The Press comment.....
 
 
Hugh Pavletich   #15   09:55 am Jun 18 2012
 
HOUSING IS A "NONSENSE ISSUE"
The last thing we need are more reports from Government hacks, when the problems and solutions are well understood.
 
Recovery Minister Brownlee chaired Parliaments Commerce Committee Housing Affordability Inquiry back 2007 / 08. He might like to read his own report.
 
Christchurch is rated "severely unaffordable" at 6.3 times household incomes as this years Demographia Survey www.demographia.com clearly illustrates, with new stock going in on the fringes at around 8 and 10 times.
 
Housing should not exceed 3 times in normal markets.
 
We can thank the Labour Government for this fiasco - allowing the 2002 / 2007 unnecessary housing bubble - as the Christchurch City Council Quick Facts Graph clearly illustrates –
 
http://www.cantabriansunite.co.nz/Our-Purpose/
 
We need to get $50,000 and below priced sections on the fringes of Christchurch as advocated by Cantabrians Unite www.cantabriansunite.co.nz - read "Achieving $50,000 sections" –
 
http://www.cantabriansunite.co.nz/resources/file/Achieve-$50,000-sections2.pdf
 
It gets very boring indeed listening to the cry babies from the poverty industry (the Churches and Social Agencies) talking nonsense on housing issues. They are not interested in solutions. They are clearly only interested in expanding poverty so that they can weasel more tax dollars out of the Government to feed their organisations.
 
Its past time these organisations acted responsibly on the housing issue
 
..........Plus....further comment at  CANTABRIANS UNITE FACEBOOK PAGE
 
Hugh Pavletich
www.cantabriansunite.co.nz
www.PerformanceUrbanPlanning.org

#4 Not a mystery at all! It's

#4 Not a mystery at all! It's called 'Atoll subsidence'. well known even back in Darwin's day 

#2 Many losers, NO

#2
Many losers, NO winners
http://www.businessinsider.com/4-reasons-why-china-is-headed-for-meltdow...
Special mention for New Zealand and Oz. 
I'm sure regular lurkers here a fully aware of the potential problems facing China but this lumps it together with inexorable and frightening logic.
Batten down the hatches, pull up the drawbridge, buy a solar battery charger.

Vancouver is very expensive.

Vancouver is very expensive. I can see how they might make a good job of an add-on in Merivale, but what about Riccarton south of Riccarton Road?
http://www.crackshackormansion.com/
 

Spengler has a cold look at

Spengler has a cold look at Europe.  He's been worth following for over a decade now....
 
money shot:
 
Kill the chicken but let the monkey watch.
 
Meaning Spain and Italy
 
The graph on Informal Economy Percentage is worth clicking the link for all by itself....