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Wednesday's Top 10 with NZ Mint: 'Let's threaten to cut Babyboomers' benefits to force an intergenerational deal'; 'China on verge of deflationary vortex'; 'You must cheat to win on Wall St'; Dilbert

Posted in Opinion

Here's my Top 10 links from around the Internet at 1 pm today in association with NZ Mint.

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

See all previous Top 10s here.

My must read is #9 from Ed Hugh on the euro-zone mess. Measured, detailed and all the scarier for it.

1. China is on the cusp of a deflationary vortex - Ambrose Evans Pritchard from The Telegraph is never short of a frightening mental image when it comes to financial trends in the Euro-zone and elsewhere.

But he always has something interesting to say.

In this latest piece on China he has some blood-curdling things to say.

New Zealanders, and our Prime Minister in particular, have been remarkably complacent about the likelihood that China will rescue us again.

Ambrose isn't nearly so sure.

Here's why:

China is on the cusp of a deflationary vortex.

This was signalled late last year by the sharpest contraction in the (real) M1 money supply since modern records began. The hard data is now confirming the warnings.

Consumer prices have been falling for the last three months, producer prices have been falling for four months. This is not a food cost story. It is systemic.

"While an economy-wide generalized deflation is yet to be seen, the deflationary spiral looks to have started in some industrial sectors, attesting to considerable stress with the economy. Persistent deflation can be poisonous," said Xianfang Ren from IHS Global Insight in Beijing.

2. Ten signs of China's economic trouble that China's data won't tell you - Also Sprach Analyst has a good list here.

Can someone please pass this on to John Key.

Cheers

3. How to sell superannuation changes - Matt Nolan muses at TVHE about how Generations X and Y can convince the Babyboomers to extend the retirement age and avoid rapidly rising taxes wiping out the younger generations.

He says X and Y should threaten to cut their benefits when X and Y finally take charge. Fair enough.

If we believe it is the hubris or straight selfishness of older generations that is behind the refusal to change the superannuation age to make it affordable – then frame it in terms they understand.

Say that, when they are retired it will be the next generation in charge.  The next generation won’t be willing to increase taxes, and so will cut them off – forcing them to leech off their children or live an impoverished existence.  If the younger generations show this degree of bloody-mindedness now then older generations will definitely cut back on consumption, and start saving for their retirement.

They might even be willing to “make a deal” regarding the retirement age.

So if that’s the way you think, stop saying how much Gen X  and Gen Y are going to get hurt by the superannuation issue – point out the potential for the Baby Boomers to have the rug pulled from under them, giving them a miserable impoverished retirement.

4. No wonder China's governments are reluctant to spend money - This China Daily article shows they are all freaked out about rules banning lots of spending. This is another reason why we're unlikely to see a repeat of 2008/09's local government-funded spending spree that helped save the New Zealand and Australian economies.

According to the regulation, anyone who overspends on the items or misappropriates funds from other budget items to cover them will be demoted or even removed from their posts in the case of "serious" violations.

The same punishment will be applied to other misconduct, such as retaining more official vehicles than the allowed quota, spending more than allowed on cars and interior decoration, and building luxurious office facilities.

5. Should Goldman Sachs go out of business - Bethany Mclean, the journalist credited with bringing down Enron, has asked whether Goldman Sachs should be broken up or taken private in this piece in Reuters pointing out it is trading well below its book value.

Goldman's market capitalisation is where it was in 2005, back when it had a third of the staff and its assets were 60% of what they are now.

One view is that Goldman has always been run for the benefit of its employees, rather than shareholders – over the years, many of the former have gotten rich, while some of the latter have lost a lot of money – and shareholders have finally wised up. In this view, it doesn’t matter what Goldman earns because ultimately that wealth will be transferred to management, not shareholders, through ever-larger compensation packages. So Goldman should take itself private and stop pretending that shareholders are part of the equation.

6. Just cheat - Reuters reports a quarter of Wall St executives surveyed by Labaton Sucharow believe they had to engage in wrongdoing to get success.

In a survey of 500 senior executives in the United States and the UK, 26 percent of respondents said they had observed or had firsthand knowledge of wrongdoing in the workplace, while 24 percent said they believed financial services professionals may need to engage in unethical or illegal conduct to be successful.

Sixteen percent of respondents said they would commit insider trading if they could get away with it, according to Labaton Sucharow. And 30 percent said their compensation plans created pressure to compromise ethical standards or violate the law.

7. Speaking of which - Reuters reports another US brokerage looks to have collapsed after US$200 million went 'missing'.

Sigh.

"The whereabouts of the funds is currently unknown," the CFTC said in a complaint against the PFG and its founder and chairman, Russell R. Wasendorf Sr., whose apparent suicide attempt on Mon day morning outside the firm's Cedar Falls, Iowa, offices appears to have triggered the crisis.

The shortfall is modest relative to the estimated $1.6 billion missing from MF Global's accounts, but news of a second broker violating sacrosanct segregated customer funds threatens to shatter the fragile confidence in the industry which once prided itself on an unblemished record in protecting client money.

8. Whatever happened to Bo Xilai? - John Garnault writes at the Sydney Morning Herald about what the silence around Bo Xilai's fate says about China's leadership turmoil.

Fourteen weeks have passed since Bo was toppled as party boss of Chongqing city and placed under some form of house arrest. It was widely billed as the biggest event in Chinese politics since the Tiananmen massacres of 1989, not least because Premier Wen Jiabao implicitly compared Bo's Chongqing with Mao's Cultural Revolution.

The Politburo is so factionally divided - and Bo subdivided it in so many personal and ideological ways - that they haven't yet worked out how to frame his sins, even though he gave them rich material to work with. Bo bypassed official channels, flirted brazenly with the military, arrested a lawyer working for a princeling peer and bent every rule of party discipline. One highlight was when a local billionaire testified how he had been tortured, stripped of his assets and then told that it was all for Bo looking after the interests of an old princeling friend in the army who has since moved on to control China's nuclear arsenal.

Bo's police chief, Wang Lijun, had been so nervous about what Bo might do to him that he tried to defect to the US, with detailed allegations of how Bo's wife had laundered money and murdered an English friend. And Bo was positioning himself as a neo-Maoist hero while his polo-playing son was driving a Porsche at Harvard.

9. Behind the failure of the latest European summit - Independent economist Edward Hugh is a close observer of the various shufflings back and forth in the Euro-zone debt crisis. He isn't confident about the future.

As Paul Krugman put it recently, the Euro crisis has three layers – troubled banks, overlaid on troubled sovereign debt, overlaid on a deep problem of competitiveness created by runaway capital flows between 2000 and 2007 which lead to a huge problem of external indebtedness. The lastest summit decisions (when implemented) will help Spain address the first and second of these. But the big outsanding issue is still growth, a topic which was almost relegated to the sidelines given the extent of the other decisions.

Economies in both Spain and Italy are sinking deeper and deeper into recession, and the 120 billion euro all Europe programme will hardly be sufficient to turn this situation around. Indeed in the case of all the rescued countries the same issues remain – where is the growth to come from? So while the summit outcome is certainly an example of yet another significant step forward, it is also a case of “oh so many rivers still left to cross”.

10. Totally Stephen Colbert on the problem with factory worker unions.

 

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.

34 Comments

Victorian deleveraging

X and Y will be looking down

X and Y will be looking down their own retirement path by the time they have a voting majority!....so expecting them to cut their own throats is just foolish.

Here is one further point to

  1. Here is one further point to ponder – in my experience an awful lot of  the so called gen x and gen y members struggle to even change a tap washer as they have all been trained for and headed off into the IT or Financial sector -or perhaps they have become highly skilled poi dancers if they had that kind of a twist.,.,.. The point is they will need US and our practical / trade skills a hell of a lot more than the other way around!!

Haaaaa. One of the locals in

Haaaaa. One of the locals in our neighbourhood is a plumber and gasfitter. Yesterday he was backing his van out of the next-door-neighbours driveway. He stopped and we had a chat. Asked him what he was doing. Thought he had retired 10 years ago. Was he just visiting?. Nah. He is now 74 years of age. He can't get the saddle off. Customers won't let him.

I know a shoe repairer who

I know a shoe repairer who has been trying to get a young person as an apprentice and has had no luck. He said they are not interested in using machines only computers. The shop employees are all old men who are dying to retire - and probably will. He said that they are working all hours god gave. There is always a queue when you go in. Mind you they do beautiful work. I certainly would not go elsewhere.

True, we will need people to

True, we will need people to fix/clean our toilets.
I wonder if immigrants will do?

This is a useful blog showing

This is a useful blog showing the extent of the housing crisis in South Auckland
http://spiderandme.blogspot.co.nz/2012/07/private-sector-solution.html

Satyajit Das is good here on

Satyajit Das is good here on the something rotten in The City of London and on Manhattan:
Barclays Bank’s admission that they “fixed” money markets rates and JP Morgan’s admission that so called hedges were “incorrect” are merely symptoms of a deeply compromised global financial system. Significantly, even The Economist, sympathetic to capitalism and finance generally, resorted to the word “banksters”. Something is rotten it the state of global finance.
http://www.nakedcapitalism.com/2012/07/satyajit-das-mr-smith-goes-to-lea...

So what's new. This link is

So what's new.
This link is well worth the 2h watch.
http://www.zerohedge.com/contributed/2012-07-09/charles-fergusons-inside...
They've been doing it for years and are unlikely to stop. Roll on the rort.
TP

Great, much appreciated!

Great, much appreciated!

Here's an article to counter

Here's an article to counter some of your regular China bashing in this column - some balance please. Just because you want China to implode doesn't mean its going to happen.
http://www.smh.com.au/business/china/pricking-two-common-china-myths-20120711-21v5k.html

"But data also shows that

"But data also shows that private consumption has been growing at a strong pace of 8 per cent to 9 per cent a year for the last 20 years."...!
Wee problem Micks....the data is 'official'...which means it aint worth a dam!
And as for the BIS coming up with such rubbish...I prefer to listen to the market and the market is screaming "Trouble in China"....and Auckland property prices are screaming "Chinese hot money coming in"

 

Actually I think the markets

Actually I think the markets are saying that China is still doing very well. 
 
Far from deteriorating, economists also say Australia's broader trade position is in better shape than it was in the first three months of this year, which should prove a bonus for the June quarter domestic economic growth report.
International trade data from the Australian Bureau of Statistics released on Thursday showed business with China increased by 14 per cent in May, compared to April, driven by a 17 per cent rise in iron ore fines exports.
All up, trade with Australia's main partners in East Asia rose 10 per cent in May, to $26.8 billion
 
http://news.smh.com.au/breaking-news-national/exporters-undaunted-by-slowing-china-20120705-21jor.html
There may be lots of stories floating the internet screaming that China is in trouble but the actual data says something very different 

They do save alot of money.

They do save alot of money. I'll give them that.
However the Chinese economy is still geared towards exporting the 'consumer goods' demanded by the west.
If their customers fail to buy what they make there will be no reason to invest their saved capital on extra production capacity. 
This leads to an over supply of capital available for domestic investment. (Hence the legendary railroads to nowhere)
So their piles of money will not serve them well during a period of low demand as they will simply be used to feed the latest bubble.
Throw socio-economic inequities on top of that and the situation in China leans towards the downside.
That all being said, the nation with alot of money will do better in a global recession that those heavily in debt.
So, IMHO, I imagine that China will have a soft economic landing - politics not-withstanding.
 

Well, looks like they've

Well, looks like they've found something to spend their money on ~

China cuts retail fuel price by 5% as oil demand falls
Apparently they want to increase fuel consumption... go figure.

#5 "One view is that Goldman

#5
"One view is that Goldman has always been run for the benefit of its employees"
They are not the only ones, look at most businesses now and see what the get paid + bonuses. Telecom comes to mind. But this actually spills all the way down, even to our own TV networks.
Have you noticed how our TV is run like a Shopping Mall. You see a Mall has an owner and inside the Mall are all these little independent businesses all using the Mall for their own business interests and really don't care about the Mall itself, only that they can profit from it.
TV is the same they all use the TV to run their own little businesses and really don't care about the TV network so long as they make their profit. Just like a Mall.
Just look at who gets funding from NZ On Air to fund their nice little perk and make a profit as well.
I notice Judy Baily having a great time in Australia. But i will let you be the judge.
Each year we get more and more adds but you never hear them say "we have increased company profits" that's because the profit is for themselves.

#3. Bernard on BB's again ..

#3. Bernard on BB's again .. He says X and Y should threaten to cut their benefits when X and Y finally take charge
 
I'd like to see that .. come the day when genX have their hands on the levers of power and within 10 years of their own retirement you can bet the view will be different and genY will be moaning about the Xers ... and then .. later.. when genY have their hands on the levers of power and have the opportunity to do something about it ... guess what ...

FYI from a reader via

FYI from a reader via email:
Question for Bernard Hickey to bring up on Marcus Lush Radio show: Why is it not possible for the NZ Govt to borrow directly from our Reserve Bank for infrastructure development projects at 0% credit instead of borrowing at interest from overseas banks which borrows their currency for nothing and charges whatever they like?
Maybe this could help pay for roading, rail, comms, energy backbone projects so long as there is a +65% firm majority in parliament to prevent abuse of the facility. eg Auckland rail project paid off via a userpay fee set really low to not make eyes water eg $2 allday use. Repayment term period can be adjusted to make it really cheap eg 40yrs=$3, 50yrs=0.50c per day use. As there is no interest the loan is essentially fixed with the only variable maintenance/improvements/expansion.
High paying highly skilled jobs, great infrastructure, cheap transport/energy/communications across the entire country for all and we fund it ourselves. And inflation over time will make it even cheaper. Can this work? Your thoughts. 

Yes it could work as long as

Yes it could work as long as it didn't create too much inflation.
The danger is the printed money just chases the same limited pool of
resources and pumps up inflation.
cheers

Danger or opportunity?

Danger or opportunity? Inflation would reduce, in real terms, the privite debt NZ is sporting, which is a good thing as its boardering on unsustainable... I say print away... sorry savers

LEAVE THE BABYBOOMERS ALONE !

LEAVE THE BABYBOOMERS ALONE ! We are not to blame for this mess. We have not had it as easy as u think , nor did we have it as easy as the current young generation .
In the 1960's I did not walk five miles barefoot to school in the winter snow and rain  , but I walked to school from the first grade with an umbrella, no car to cart us to school like today  . My Nana paid for my school shoes from her police widows pension , because school shoes cost a fortune and my folks could not afford them.At high school I spent the first winter without a jersey, becasue it was unaffordable .
The babyboomers tarred the bulk of the roads, doubled the number of buildings in the country  built the powerlines and electrical grid , we went to war in Vietman and we worked our arses off .
My wife and I saved and saved and saved , it took years to scrape together the deposit for a first house  and now we have income generating assets , and no net debt, we dont own a credit card  ,and dont need one , if we cant afford it we dont buy it .
The younger generation have an instant gratification philosophy , and everything is on the credit card , no savings and cannot even afford the deposit on a house, dont blame us for this mess .
 
 

Dear mist42NZ ,Dont blame

Dear mist42NZ ,Dont blame Babyboomers , ITSTHE UNDER 35'S THAT HAVE COCKED EVERYTHING UP, LOOK AT THE RECENT LIBOR FIASCO Those e-mails were from Gen Xand Y, greedy risk taking  whizz kids who think they are bulletproof , and dont know when to stop.
BTW , I am neither narrow minded , nor a bureacrat . I am a self employed person with an open mind to new ideas and change.
To answer your question we built infrastructure with taxes collected from each other.
We taught kids resepct and did not prevent them from questioning the status quo as you allege  
 

Intergenerational

Intergenerational blame-shifting is a waste of time.
 
Yes, the preceeding ones raped the resources, and have left an impossible complexity which can't won't be maintained. The knowledge was around for them to do better, but wasting effort of deciding whether they should have reacted, won't change where we are now.
 
The young have been trained as good wee consumers, don't blame them for that. It won't/can'y continue, of course.
 
Addressing the imbalances (fiscal and physical) together is the only way forward. Young and old alike need lifeboats, or drown. How about we just define the lifeboat(s)?

In the 1980's I walked to

In the 1980's I walked to school barefoot and the quality of roads and footpaths your generation had provided for me was shite.  Dad had the only car to travel to work so no car for us to cart us to school either.  I have savings and have saved ever since my first after school job and I still can't afford a deposit on a house.
I don't blame you either.  You made decisions based on your knowledge and information at the time.  How were you to know that "economics" would take us to where we are now?
The fact is the conditions are different for each generation yet just the same.  We all have a short sightedness.  We're all self centred.  The younger generation may have an instant gratification philosophy but the older generation have a hoarding philosophy.
 

The intergenerational wealth

The intergenerational wealth scrap is a ( white ) middle class thing isn't it?
Against a background of 35+ years of neo classic economics which has funneled wealth to the 1%ers and blown up the world economy, the thread bare middle class has borrowed for a generation or 2 to maintain the illusion of higher or at least maintained,  living standards - re: property bubbles, student debt, credit card debt - in lieu of real economic progress.
 
Now its all a bit like one of those hollywood disaster movies where a bunch of survivors thrown together have to put aside fear, panic and self interest to cooperate long enough to get out of a tight spot.
 
 
 
 

It probably is an issue if

It probably is an issue if your great-grandfather owned racehouses :-)