sign up log in
Want to go ad-free? Find out how, here.

Thursday's Top 10 with NZ Mint: An oily flash crash; Caught between the devil and the ECB; China may dump Japanese bonds in act of economic warfare; Fat cat pictures; Dilbert

Thursday's Top 10 with NZ Mint: An oily flash crash; Caught between the devil and the ECB; China may dump Japanese bonds in act of economic warfare; Fat cat pictures; Dilbert

Here's my Top 10 links from around the Internet at 9.30 am today in association with NZ Mint.

As always, 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 #1, which mentions Faust, the devil and unlimited money printing in the same story.

1. 'The work of the devil' - This is extraordinarily powerful stuff from Bundesbank President Jens Weidemann.

He has compared the unlimited mass money printing around the world (Fed, Bank of Japan, European Central Bank and Bank of England) to the work of the devil in Faust.

Think about this for a moment.

The head of a nation's central bank is comparing the work of his colleagues at the European Central Bank to that of the most hated figure in the history of German literature. He is criticising a policy endorsed by the German Chancellor and the German government. He is evoking the memory of the hyper-inflationary periods in Germany after both World Wars to criticise the policies of the world's largest central banks.

Can you imagine our own central bank governor taking such a stance in opposition to our Government?

He may not be right, but you've got to admire his Chutzpah and his turn of phrase.

Here's the detail courtesy of The Telegraph:

Jens Weidmann said that efforts by central banks to pump money into the economy reminded him of the scene in Faust, when the devil Mephistopheles, “disguised as a fool”, convinces an emperor to issue large amounts of paper money. In Goethe’s classic, the money printing solves the kingdom’s financial problems but the tale ends badly with rampant inflation.

Without specifically mentioning Mario Draghi’s bond-buying programme, he said: “If a central bank can potentially create unlimited money from nothing, how can it ensure that money is sufficiently scarce to retain its value?” He added: “Yes, this temptation certainly exists, and many in monetary history have succumbed to it,” Mr Weidmann warned.

Although the remarks were in context - Frankfurt is currently marking the 180th anniversary of the death of Goethe - they defy calls by leaders for Mr Weidmann to tone down his criticism of the ECB, particularly at a febrile moment in the crisis. The launch by Mr Draghi of an unlimited bond-buying programme has boosted both confidence and markets.

2. 'Just dump their bonds' - Most of the focus on China's bond holdings is on its massive holding of US Treasuries. But it also owns masses of Japanese government bonds. The latest tensions between China and Japan raise the risk China could use those bond holdings as a type of weapon of economic warfare.

Here's Ambrose Evans Pritchard at The Telegraph with another pearler:

A senior advisor to the Chinese government has called for an attack on the Japanese bond market to precipitate a funding crisis and bring the country to its knees, unless Tokyo reverses its decision to nationalise the disputed Senkaku/Diaoyu islands in the East China Sea.

Jin Baisong from the Chinese Academy of International Trade – a branch of the commerce ministry – said China should use its power as Japan’s biggest creditor with $230bn (£141bn) of bonds to “impose sanctions on Japan in the most effective manner” and bring Tokyo’s festering fiscal crisis to a head.

Writing in the Communist Party newspaper China Daily, Mr Jin called on China to invoke the “security exception” rule under the World Trade Organisation to punish Japan, rejecting arguments that a trade war between the two Pacific giants would be mutually destructive. Separately, the Hong Kong Economic Journal reported that China is drawing up plans to cut off Japan’s supplies of rare earth metals needed for hi-tech industry.

3. The Burning Platform - I'm often accused of 'gloomsterising' by the likes of GBH. Fair enough. I do see some of the problems in the world and have done for a few years, mainly because many of the things that should normally be happening in a recovery are not.

Here's Jim Quinn from The Burning Platform with a right old rant about what he's seeing in his neighbourhoods in America, interwoven with plenty of useful charts. It's well worth a read, just to get a sense of what's gone wrong in America. It's a bit of a rant, but it does pull everything together.

Remember. My job is not to cheer-lead. I'm the guy who's supposed to challenge the current 'group think' and be the slice of lemon in the gin and tonic.

Here's Quinn and a cracking chart showing how US debt has risen (blue line) while incomes haven't risen nearly as fast, particularly after 1990 when banks leveraged up and borrowing exploded.

The thirty years of delusion were financed with debt – peddled, hawked, marketed, and pushed by the drug dealers on Wall Street. The American people got hooked on debt and still have not kicked the habit. The decline in household debt since 2008 is solely due to the Wall Street banks writing off $800 billion of mortgage, credit card, and auto loan debt and transferring the cost to the already drowning American taxpayer.

The powers that be are desperately attempting to keep this unsustainable, dysfunctional debt choked scheme from disintegrating by doling out more subprime auto debt, subprime student loan debt, low down payment mortgages, and good old credit card debt. It won’t work. The consumer is tapped out. Last week’s horrific retail sales report for August confirmed this fact. Declining household income and rising costs for energy, food, clothing, tuition, taxes, health insurance, and the other things needed to survive in the real world, have broken the spirit of Middle America. The protracted implosion of our consumer society has only just begun. There are thousands of retail outlets to be closed, hundreds of thousands of jobs to be eliminated, thousands of malls to be demolished, and billions of loan losses to be incurred by the criminal Wall Street banks.

4. Some light relief - Someone in Britain has published a calendar of fat cats. That's cats that are fat, not bankers.

Thanks (I think) to the Daily Mail.

5. Oily flash crash - The algos seemed to go mad again this week. The oil price dropped US$4 a barrel in a matter of minutes and authorities are now investigating whether algorythmic traders (ie computers trading in nanoseconds against each other) were to blame.

6. Why Wall St Always Wins - Matt Taibbi reviews this book from a US Senate staffer explaining how policy is actually made and enforced in Washington. It will chill you to the bone.

The great mystery story in American politics these days is why, over the course of two presidential administrations (one from each party), there’s been no serious federal criminal investigation of Wall Street during a period of what appears to be epic corruption. People on the outside have speculated and come up with dozens of possible reasons, some plausible, some tending toward the conspiratorial – but there have been very few who've come at the issue from the inside.

We get one of those rare inside accounts in The Payoff: Why Wall Street Always Wins, a new book by Jeff Connaughton, the former aide to Senators Ted Kaufman and Joe Biden. Jeff is well known to reporters like me; during a period when most government officials double-talked or downplayed the Wall Street corruption problem, Jeff was one of the few voices on the Hill who always talked about the subject with appropriate alarm.

Most damningly, Connaughton writes about something he calls "The Blob," a kind of catchall term describing an oozy pile of Hill insiders who are all incestuously interconnected, sometimes by financial or political ties, sometimes by marriage, sometimes by all three. And what Connaughton and Kaufman found is that taking on Wall Street even with the aim of imposing simple, logical fixes often inspired immediate hostile responses from The Blob.

7. A promo video for the iPhone 5 - Here's an exclusive insiders' account on how brilliant the iPhone 5 really is. I can't wait.

Literally. I can't. Wait.

8. What Martin Wolf says - I always read FT columnist Martin Wolf. He's often a voice of reason amid the cacophony.

Here he comments on the Fed's QE Infinity and how serious people are now considering nominal GDP targeting (which our Reserve Bank continues to say is anathema)

In a lengthy discussion of monetary policy “at the interest-rate lower bound”, also given at Jackson Hole, Michael Woodford of Columbia University argues for an explicit nominal GDP target, for fiscal stimulus and for close co-ordination of monetary and fiscal policies. But tighter co-ordination is inconceivable in the US. If the Fed did announce a plan to get nominal GDP back to its 1990-2007 trend by, say, the fourth quarter of 2016, it would need to deliver a 45 per cent increase from the second quarter of this year. That is an indicator of the scale of the demand shortfall. Needless to say, such a target is hugely unlikely.

Critics argue that the new Fed policy will not only fail to work as hoped, which is likely, but will do vast damage, which is far less so. Many have been prophesying hyperinflation for years. This fear is misguided. Unconventional policies do indeed create costs and risks. But the costs and risks of deficient demand are far greater. The Fed has decided to err on the side of expansion. That is surely right. It is, in truth, more likely to achieve too little of what it seeks than too much.

9. Why does China save much more than anyone else? - LSE Economist Keyu Jin suggests at Project Syndicate it's because the Chinese banks aren't very good at encouraging consumers to borrow while American, European (and Australasian) banks are very good at encouraging borrowing.

The answer may be that credit markets are more developed in advanced economies than they are in emerging countries, particularly in terms of the degree to which households are able to borrow. Of course, one might argue that Asian thrift and American profligacy merely reflect asymmetric demands for credit: Asians are intrinsically more reluctant to borrow. In that case, however, the vast differences in household debt (Figure 2) – ranging from 25% of GDP in emerging Asia (Southeast Asia, China, India, Hong Kong, and South Korea) to more than 90% in the US and other Anglo-Saxon economies (including Australia, Canada, Ireland, New Zealand, and the United Kingdom) – would reflect only a dissimilarity in taste.

CommentsA more plausible explanation is that institutional differences in the ability to borrow dictate to some extent the disparity in savings rates across countries. The argument is simple: All economies have both borrowers and savers, and changes in the cost of borrowing (or the return to saving) affect them differently. When interest rates decline, borrowers are able to borrow more. Savers, on the other hand, may be compelled to save more in the face of shrinking interest income.

CommentsAt the macro level, a less credit-constrained economy (with a large mass of effective borrowers) could then experience a fall in the savings rate as borrowing rose. However, in a country with a large mass of effective savers, the savings rate can rise, rather than fall. This asymmetry in savings patterns might thus reflect the simple fact that credit-constrained economies are less sensitive to drops in the cost of borrowing relative to less constrained economies.

10. Totally Jon Stewart and John Hodgman on Mitt Romney's inelegant comments on the 47% of America's population who are slackers, bludgers and don't pay tax!

 

We welcome your comments below. If you are not already registered, please register to comment.

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.

32 Comments

China's act of revenge by selling it's holding of Japanese bonds will backfire....BOJ will just issue more paper money to buy everything that the Chinese sells, as the bonds are denominated in Yen. The subsequent selling of Yen by the Chinese will just help the Japanese to weaken the Yen further. (something the BOJ has been trying to do but unsuccessfully for decades)

The same analysis applies to it's holding of USD.

China's 3.5Trillion reserves has now become a millstone and a trap it cannot escape. 

Up
0

3 - that's a classic graph. Doesn't matter what it is, no exponential track continues far up the vertical bit.

Up
0

And as I pointed out here a few days ago, it still looks exponential when corrected for population growth and inflation.

The punters are going to wake up soon and it won't be pretty.

Up
0

They still won't see the forest from the trees though:

 

Growth cannot go on forever - blame physics.

Up
0

Number 3. The Burning Platform. In support of Bernard's "gloomsterising" .. keep up the good work .. GBH does not speak for everyone .. when assessing market conditions it is desirable to be aware of every potential pit-fall and that means "EVERY" pitfall .. but that can be balanced by offering the counter-vailing view .. in other words "balance" .. the key is to present a balanced opinion .. otherwise just present both sides of the argument .. lead your readers to a conclusion .. but you do tend to get lock-jaw on some subjects .. gotta remember to unlock the jaws sometime .. and remember to use 50+ blockout cream .. if you use steroidal cortisone creams for too long it makes the skin thin and brittle. If it's any consolation, remember this .. both you and Steve Keen made some serious calls at the height of the GFC .. the mistake you both made was localising the target of the call .. in a global context you were both right .. in a local context you were both wrong ..

Up
0

If there is a moral high ground, then does it reside with Bernard or GBH? More to the point is there one holding the immoral ground?

Up
0

We are as " Doctor Evil & Mini Me " : Bernie is 6 ft 5  /   Gummy is 5 ft 6 ..........

 

....... Bernie has a head full of hair  /  Gummy has a head on his beer .......

 

Bernard gets locked up with Bolly /  Gummy unlocks the Bolly ...... pop , fizzzzzzzzzzz !

 

And the initials , GBH ...... Grizzly Bernard Hickey  ! ...... dead give away that one ....

Up
0

Globally the middle class are taking a hammering. Like - disappearing! Cannot be debated. Fact!

 

I speak out on this - because I witness what this has done to my customer base. Like - vanished. We have avoided this ourselves - just like GBH. We are OK. We saw it coming in 1990.

 

GBH is always 100% correct. Within confines. He considers only his own situation - plus those around him who are OK. Thats also us! We are also OK.

 

A wider appreciation of the hopeless reality facing many former NZ middle class would make GBH's position a bit more mainstream.

 

Without a large broadbased middleclass we face an entirely different future. I am worried about that.

 

So GBH - you are both right and wrong. 

Rudderless but not aimless

Up
0
Up
0

Hudson always nails it. Unfortunately like the police report on John Banks, I doubt our PM wants to read Hudson because it might confront him with more than a few uncomfortable truths about the woeful ethics and morality of the industry he has served so willingly. Read no evil, see no evil.

Up
0

Although algorythmic traders do seem to follow repeated rhythmic patterns, they are actually using algorithms to determine their trades.

Up
0

Whoop de do, the new iphone 5 eh? When you choose not to own a cell phone then news of the new iphone really puts the shallow and materialistic nature of the world in sharp perspective. 

Up
0

LOL...

but I so want one.....my 2005 phone is so past it.......

regards

Up
0

"Declining household income and rising costs for energy, food, clothing, tuition, taxes, health insurance, and the other things needed to survive in the real world, have broken the spirit of Middle America. The protracted implosion of our consumer society has only just begun. There are thousands of retail outlets to be closed, hundreds of thousands of jobs to be eliminated, thousands of malls to be demolished, and billions of loan losses to be incurred"

and some see inflation from money printing......yeah sure.

regards

Up
0

#1.  Describing the mass of money printing as Faustian.

Well.  Yes. 

Is that not exactly what it is ?

Up
0

#7 A little known fact, the iphone 4s will not download a file bigger than 20mb. There has been no mention of a change for the 5.

Or for that matter a change to gorilla glass, standard for most other smart phones, but not for the iphone. Everyone I know has issues with the face scratching.

Battery, cant get it out, why?

SD card, cant put one in why?

SG3 outguns it by far, and I am no techie, if I can catch on, so will the rest of the world.( Hell, the SG2 outdoes the i5)

 

 

 

Up
0

Did Bernard compare himself to a slice of lemon or did I misread? Good one :)

Up
0

.... only the arch gloomsteriser could screw up a perfectly simple and delicious drink as a G & T by plonking a frigging slice of lemon ( himself ! ) in it .......

 

Lime , dear boy , garnish it with a slice of lime !

Up
0

"The algos seemed to go mad again this week. The oil price dropped US$4 a barrel in a matter of minutes and authorities are now investigating whether algorythmic traders (ie computers trading in nanoseconds against each other) were to blame."

 

I wondered if someone had made a comment about the dramatic fall in the price of oil. Many economic commentators link the price drop to renewed talks between Iran and the Big Five powers, where Iran has indicated it will end production of its most highly enriched uranium in its nuclear programme. 

 

 

"On Sunday, Iran state television said negotiations with the U.S.ChinaRussiaFranceBritain and Germany over the country's nuclear program are scheduled to begin Friday in Istanbul. Fears that an attack on Iran's nuclear facilities by Israel or the U.S. would disrupt global crude supplies have helped push oil prices up from $75 in October.

In a fresh outline of a possible compromise proposal, Iran's nuclear chief said Sunday that the Islamic Republic may pledge to eventually stop producing its most highly enriched uranium, while not totally abandoning its ability to make nuclear fuel."

 

http://www.csmonitor.com/Business/Latest-News-Wires/2012/0409/Oil-prices-drop-ahead-of-Iran-talks

 

Its Chris Cook's suspicion that prices fell so abruptly, because the news had been leaked ahead of the talks and someone with financial power capitalized on their inside knowledge. 

 

 

"Good analysis except that what leaked IMHO was the news that Iran convened a short notice meeting with the 5+1 in Istanbul – in the Iranian consulate (which is significant).

Iran has finally decided to back down, I believe, having been politically paralysed for some time on the issue, with no good moves.

As for the Saudis, all we are seeing is more spin being sold to credulous reporters who should know better. The market is awash in oil, with consumption by refiners (as opposed to reserve building/physical hedging at an Iran risk premium) way down.

The Saudis are desperately trying to maintain, through after-the-event spin, what is undoubtedly the greatest manipulation in the history of commodity trading – ie supporting oil prices with muppet money (facilitated by investment banks) via the use of prepays.

If the history of commodity trading has taught us anything, it’s that if producers CAN support prices, then they WILL. The Saudis are no exception, having been sold on prepays in late 2008 when their revenues collapsed."

http://streetwiseprofessor.com/?p=6604

 

Up
0

I was in town today and went to Office Max, the place was empty I asked the girl if it was unusually quiet, she said it was dead and they are way behind on sale targets. She said the whole town was quiet and she had a friend working at Best Buy and the place was dead too. The bloke on the other counter chirped in to say" we are stuffed, fuel is too expensive and its killed any recovery."

 Obama is going to be despirate to kick start the economy its too late for much else other than forcing gas prices down, $4.30 a gallon tonight for premium, cheap but not if your truck does 10  miles to the gallon. Diesel is slightly higher at about $4.60 and I think thats were the pain is being felt most.

Andrew

Up
0

The lack of people instore might also be due to more people shopping online? We have an account with the Office Products Depot and order everything online. Saves on time and on petrol.

 

That said, we have noticed a big drop in business in the last few months too. Nobody seems to have a budget anymore. Companies tell us they have shrunk/done away with their IT development budget altogether. Friends running businesses in other areas have reported the same drop. Not great.

Up
0

Hi Elley,

 The problem is that someone is breaking into the mail boxes around here, its a nice part of town so the pickings must be good. Parcels are disappearing all over the place, the post office is onto it so they tell us. Crime is becoming a big problem over here.

Up
0

Gosh, whereabouts is that? I've never heard of this happening around here (Oxford). That said, OPD don't leave their parcels in the mailbox (even if they fit), they get delivered to our door like the online grocery shopping.

Up
0

We have mail boxes in lots of ten on the street, they have two bigger boxes on the side for parcels and they put the key in your box for the parcel bin if you have a parcel. The key cannot be removed from the parcel bin except with the postmans key. Some sod is picking some locks and just breaking into others.  

  As Ive said crime is way up but it still feels very safe to us. Some young guy from NY broke into a house in town, disturbed a man in bed with his girlfriend, he had a loaded 45 acp by his bed and we have castle law around here, he only wounded the guy who will be shipped back to the east coast eventually.

Up
0

Reminds me of the guy who broke into a house and held a man and woman at gunpoint.  The perp wanted to tie up the man and while doing so put the pistol under his belt in order that he would have two hands free to tie him up.  During this procedure the woman acted quickly and pulled the pistol from the perp's belt and shot him dead.

 

Or the one where a nutcase was trying to get in through the front door of a woman's house.  She called the police but the guy kept on trying to break down the door.  While waiting for the police she located a shotgun and sat on the stairs opposite the front door.  She told the guy that the police were on their way and that she had a gun.  He continued to attack the door and eventually broke through at which point she shot him.

 

Only in America...

 

Up
0

1 US gallon = 3.785 litres
1 mile = 1.609344  kilometres
10 miles = 16.09 kilometres

 

10 mpg = 4.24 kilometres per litre

 

At USD $4.30 per gallon they're paying USD $1.13 per litre

Up
0

Andrew - Couple of links - the baltic dry index and shipping container problems for Germany.

Interesting link you pulled up on deflation - it would explain why the bond markets have gained so much attention from investors as bonds are a safe haven and perform well in deflation.

 

http://www.telegraph.co.uk/finance/newsbysector/transport/9473476/World…

 

http://agmetalminer.com/2012/08/16/forget-the-baltic-dry-index-take-loo…

Up
0

Thanks

 

 

More QE coming, Bank of England minutes suggest More money printing is likely within months despite signs that inflation is proving stickier than expected, economists said, after minutes from the Bank of England’s rate-setting meeting revealed that policymakers are poised to vote for further quantitative easing.

 

 

http://www.telegraph.co.uk/finance/economics/9553899/More-QE-coming-Ban…

 

California August Sales Tax Collection Down 20% From Year Ago, Total Revenues Down 5.5%, Income Tax Up 11.6%; Spending Out Of Control By $3 Billion
Read more at http://globaleconomicanalysis.blogspot.com/#Q0jx9Q4SuLDPxMgo.99

Did you read Hudson?

http://www.nakedcapitalism.com/2012/09/michael-hudson-on-how-finance-ca…

Up
0

just returned from 2 days at the mount.

main street empty apart from 1 cafe

overpriced clothes shops empty,surf shops empty and a fish and chip shop charging $1.20 for a potato fritter empty.

plenty of people climbing up the mountain but i think it was to jump off the top because of the high prices of everything below.

Up
0

No need to hike the OCR to kill the economy anymore ....

Gas prices, consumer paralysis, job-loss fear, electricity/rates/insurance hikes  all doing a magnificent job for the Reserve Bank.

Up
0

Yup, our house insurance up around 60% (yup sixty) this year, here in Christchurch.  Plus extra restrictions added limiting liability for insurance company.  We could just say no I suppose, but chances are we wouldn't find another insurer.

 

Up
0