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Wednesday's Top 10 with NZ Mint: Eureka, it's WiFi in a light bulb; Italians can only afford bikes; The social pain in Spain; 'Show me (the taxman) the money'; Why the old want deflation; Dilbert

Wednesday's Top 10 with NZ Mint: Eureka, it's WiFi in a light bulb; Italians can only afford bikes; The social pain in Spain; 'Show me (the taxman) the money'; Why the old want deflation; Dilbert

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

As always, we welcome your additions in the comments below or via email tobernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must read chart is #6 and #7 from Stephen Roach on America's consumer zombies and the dangers of Quantitative Easing.

1. Light bulbs to do WiFi? - Further to the debate in yesterday's comment stream about not nearly enough positive news (I'm looking at you Gummy), here's a quirky story from CNN about a German scientist that's inventing a way to turn a light bulb into a WiFi device.

I'm not sure how this makes the world a better place, but I'm hoping it makes WiFi more widely available.

The one issue with the increasing internetisation of the economy is it isn't generating more jobs and seems one of the tools by which the profit share is growing at the expense of the income share.

But hey.

It's good news right?

I'm not so sure about the intensely flickering light though...

Haas and his team at the UK's University of Edinburgh, are the brains behind a new patented technology that uses beams of flickering light to transmit digital information wirelessly, a process known as Visible Light Communication (VLC).

"My big idea is to turn light bulbs into broadband communication devices ... so that they not only provide illumination, but an essential utility," he says.

Haas claims that data can be sent by adding a microchip to any humble LED bulb, making it blink on and off at a phenomenal speed, millions of times per second.

2. Spain's cultural fabric tearing - The Guardian's Giles Tremlett reports on the social stresses now evident in Spain where youth unemployment is over 50%.

One of the interesting trends is elderly parents being pulled back out of nursing homes to live at home with the rest of the family because of the rest of the family needs their pensions.

As unemployment hits 25% and keeps rising, parts of the country's fabric are beginning to tear. Half a million homes have no breadwinner. More than half of the under-25s and half of immigrants are jobless. And with one-third of them not qualifying for unemployment benefit, desperation is setting in.

One of the alarming tendencies is the removal of old people from care homes, with families either unable to pay or simply desperate to have the stable, if meagre, income provided by a pension back in the house. Some 8,000-10,000 of the 240,000 people in private residential homes have returned to their families this year alone, according to the FED association of private care homes, which account for about 75% of private beds.

"We have particularly noticed people leaving since the beginning of the year, because even though they need the care we provide, their families have lost jobs, they can't afford their part of the payment or they simply need their grandparent's pension to live on," FED president José Alberto Echeverría said.

3. Stashing away the money - Tyler Durden at Zerohedge has a good old fossick around the business of where very wealthy people from developing countries are stashing their money these days.

The American crackdown on the Swiss bank account lark is forcing many into luxury high end property in London, Milan and elsewhere. I bet some of it is going into Auckland.

There has recently been a crackdown on Greek tycoons stashing their money into London luxury property. So it's on the hunt for other parts of the world.

It's all part of the game of stuffing mattresses with recently printed money.

While hardly a secret, for decades the ultra-luxury housing segment in any country was the target not so much of local wealthy individuals and business, but foreigners, for whom the grass was always greener, and sought to put their money into "hard assets" abroad to save it from local confiscation. After all, it is far easier to be sued and prosecuted by your own government than a foreign one. Two very vivid examples are the most expensive house in Miami ever sold, which two months ago fetched a price of $47 million, which was purchased by "a Russian who bought the home in the name of a U.S.-based limited-liability company" and in the until recently a record $88 million paid for a 15 CPW penthouse for the daughter of Russian billionaire, Dmitry Rybolovlev (bought from Citi's Sandy "End TBTF" Weill). The record was topped at $90 million paid for a One57 duplex apartment paid by an unknown individual, almost certainly a foreigner.

The common theme here of course is that foreigners come to the US (or London, or Geneva, or Hong Kong) or any other wealthy megapolis with their almost always ill-gotten, and untaxed gains, spend the money indiscriminately on local real estate even as the local authorities look the other way because by lifting any offer, these foreigners, while laundering illegal money, are also keeping the all important housing market afloat thus perpetuing the illusion that the domestic economic is rising. Instead all that is happening is it is attracting illegal foreign capital flows.

4. Here comes the tax man - Further to the issue of dirty cash looking for laundries, the NY Times' Landon Thomas reports on how Greek tax evaders are being chased all the way to London.

Are we sure none of this type of money is coming here?

At the request of the Athens government, the British financial authorities recently handed over a detailed list of about 400 Greek individuals who have bought and sold London properties since 2009.

The list, closely guarded, has not been publicly disclosed. But Greek officials are examining it to determine whether the people named — who they say include prominent businessmen, bankers, shipping tycoons and professional athletes — have deceived the tax authorities by understating their wealth.

Bankers say that accounts in Singapore and even in the country of Georgia have become favorite destinations for fleeing funds, more so than the traditional haven of Switzerland, because the looser rules and regulations of those countries about accepting large sums of foreign money. But while Singapore and Switzerland have been reluctant to divulge information about its Greek clientele, the British government has been more cooperative in sharing its real estate records.

5. Forza Italia - BBC reports Italians bought more bicycles than cars for the first time in decades as they tighten their belts under directives from Europe and bicycles become more fashionable.

6. A basket of inflation rates? - The chorus is building to question our Reserve Bank's focus on inflation targeting.

Here's the newly independent Simon Botherway thinking his way through the issues in an opinion piece at Stuff.

Some are now questioning the wisdom of settling an explicit inflation policy target in New Zealand for the incoming Reserve Bank Governor whereas globally central banks are pre-occupied with economic growth. The consequences of this policy framework will be interesting but probably painful to watch. The implications of an appreciating currency for New Zealand are fairly self-evident as they were to the Swiss who became so fed-up with the appreciation of the Swiss Franc that they ended up pegging it to the Euro.
 
A better idea might be to peg the Reserve Bank's inflation target to the weighted average of our trading partners? Although we would inevitably experience higher inflation we would likely avoid the relative contraction that will probably result from the pursuit of monetary orthodoxy in an unorthodox world.

In any event, monetary policy globally is likely to remain exceptionally easy for an extended period of time. Fixed income investors who have become accustomed to interest rates substantially in excess of the rate of inflation will struggle to find investments that meet their expectations. Unfortunately, such an environment is likely to be the new normal. Central banks' actions signal that it's time for a portfolio re-think.

6. America's economic walking dead - Stephen S Roach nails the problem with the US economy in this AFR.com.au piece, and by extension, he's talking about much of the indebted household sector in the developed world.

The disease is a protracted balance-sheet recession that has turned a generation of America’s consumers into zombies – the economic walking dead. Think Japan, and its corporate zombies of the 1990s. Just as they wrote the script for the first of Japan’s lost decades, their counterparts are now doing the same for the US economy.

Two bubbles – property and credit – enabled a decade of excessive consumption. Since their collapse in 2007, US households have understandably become fixated on repairing the damage. That means paying down debt and rebuilding savings, leaving consumer demand mired in protracted weakness.

Yet the treatment prescribed for this malady has compounded the problem. Steeped in denial, the Federal Reserve is treating the disease as a cyclical problem – deploying the full force of monetary accommodation to compensate for what it believes to be a temporary shortfall in aggregate demand.

The convoluted logic behind this strategy is quite disturbing – not only for the US, but also for the global economy. There is nothing cyclical about the lasting aftershocks of a balance-sheet recession that have now been evident for nearly five years. Indeed, balance-sheet repair has barely begun for US households.

7. Dubious channels - Roach also nails the problem with Quantitative Easing. HT John.

The Fed’s policy gambit has taken the US down the wrong road. Indeed, the Fed has doubled down on an approach aimed at recreating the madness of an asset- and credit-dependent consumption model – precisely the mistake that pushed the US economy toward the abyss in 2003-2006. Just as two previous rounds of quantitative easing failed to accelerate US households’ balance-sheet repair, there is little reason to believe that “QE3” will do the trick. Quantitative easing is a blunt instrument, at best, and operates through highly circuitous – and thus dubious – channels.

Just as two previous rounds of quantitative easing failed to accelerate US households’ balance-sheet repair, there is little reason to believe that “QE3” will do the trick. Quantitative easing is a blunt instrument, at best, and operates through highly circuitous – and thus dubious – channels. Significantly, it does next to nothing to alleviate the twin problems of excess leverage and inadequate saving. Policies aimed directly at debt forgiveness and enhanced saving incentives – contentious, to be sure – would at least address zombie consumers’ balance-sheet problems.

Moreover, the side effects of quantitative easing are significant. Many worry about an upsurge in inflation, though, given the outsize slack in the global economy – and the likelihood it will persist for years to come – that is not high on my watch list.

Far more disconcerting is the willingness of major central banks – not just the Fed, but also the European Central Bank, the Bank of England, and the Bank of Japan – to inject massive amounts of excess liquidity into asset markets – excesses that cannot be absorbed by sluggish real economies. That puts central banks in the destabilising position of abdicating control over financial markets. For a world beset by seemingly endemic financial instability, this could prove to be the most destructive development of all.

8. Demographics and Redistribution - Central bankers James Bullard, Carlos Garriga, and Christopher J. Waller have written a paper for the Bank of Japan on Demographics, Redistribution and Optimal Inflation.

The research points out the young want high wages and low real interest rates, while the old want low inflation and high real interest rates. It makes the point that ageing populations almost naturally tend towards deflation because the old hold the levers of power and want to protect their savings...

The two charts show the relationships between an ageing population (green dotted lines) and inflation rates (hard blue lines) in the United States and Japan respectively. It's an interesting connection and perhaps explains why so many are betting on lower interest rates and inflation for longer.

When the old have more influence on the redistributive policy, the economy has a relatively low steady state level of capital and a relatively low steady state rate of inflation. The opposite happens as young cohorts have more control of policy. These results suggest that aging population structures like those in Japan may contribute to observed low rates of inflation or even deflation.

9. Germany's monstrous Target 2 - Jeremy Warner at The Telegraph writes about the time bomb developing underneath Germany's finances as capital flows from Southern Europe to Northern Europe.

One of the most mind-boggling debates going on in euroland right now – only one of many, but particularly guaranteed to make the head spin, this one – is over the build-up of so-called “Target 2” claims and liabilities. Target 2 is the mechanism by which money is transferred around the euro area to ensure that each national central bank has sufficient euros to fund its banking system.

Accumulated cross border claims are now so extreme that they threaten to leave German taxpayers with huge losses should the euro break up, or any one of its members leaves.

The economist who has done the most to raise the profile of this issue is Hans-Werner Sinn, head of the Munich-based Ifo Institute. Germany would lose the thick end of a €1 trillion, he has written, should Greece, Ireland, Portugal, Spain and Italy leave the euro, or around a quarter of GDP.

10. Totally Stephen Colbert on Mitt Romney's tax maths.

 

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17 Comments

Can't help but think that this might be happening in Auckland as well, notwithstanding the flood of money coming in from offshore.

That the banks are willing to pay property taxes and receive zero income for 3+ years reflects the banks' dedication to restricting the inventory of unsold homes so prices will be forced higher as supply drops below demand.

 

And I know it is happening with vineyards in Marlborough.

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No 1. Nice one. There is technology for imposing signals at frequencies other than 50Hz on the power lines. This one may be a good way of getting it off the power and onto the mobile device. I can just imagine it: "Can you move your fat ass please, you're blocking my signal!"

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I know it may not seem like much to you , but for Bernard to include a good news story in the Top 10 is meritorious of itself , even more so that he kicked off the Top 10 with it ......

 

...... which is why he's probably still laying on the office floor , hyperventilating , as we speak ...

 

Fetch a large paper bag please Alex , or Amanda ...... deep breaths Bernie , slowly now ...

 

...... Gummy is extremely proud of you ........ welcome to the side of goodness , and nice ....

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I like the Top 10 the way it is - economic news and analysis, no need for 'feel good' stories just because some character can't handle it.

 

If he doesn't like it he could always go read the Womens Weekly online or something.

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"all quiet" for the next 30 days?  Obama needs this for the perception the US economy isnt tanking in order to get re-elected.  So maybe there is a huge behind the scenes move to keep a lid on the EU until after the election.

http://theautomaticearth.com/Finance/will-the-collapse-of-spain-put-rom…

regards

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Obama's a disappointment for being to beholden to the banks...but can you imagine the alternative!!  Check the Colbert clip!

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I note with interest the breaking news that out glorious leader was imagining himself on a golf course on planet key when he was being briefed about domestic spying...

 

Perhaps the only time he actually listens is when his ex-mates from the banking world ring him up and tell him they need somewhere to put their money...NZ land, Auckland houses, why not NZ's infrastructure... let's start with the power companies...

And JK replies...yeah, I've got Banksy in my pocket to be able to get whatever you boys want...and perhaps you can help me get membership of that prestigious golf course in Maui..

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The "research" in #8 (as well as its disseminators) should be nominated for the Ig Nobel Prize.

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Oh Oh OZ trade deficit blows out , 90 cent aus?

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Are all you CEO's out there aware that the NZ Companies Office as from Aug 2012 is charging a $45 Annual Filing Fee ( thanks for coming) until further notice?

Reason: This taxpayer funded department is apparently running at a loss and YOU must now contribute to the services of the:

 Financial Markets Authority (FMA) and the External Reporting Board (XRB).

via new levies. Because they do soooo much....for you and your companies. 
 

 

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Regards #4 and foreigners buying up land abroad, I heard the percentage of Asians buying in central Akl is much higher than anyone could realise.  More and more kiwis becoming tenants with foreign or foreign backed landlords

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"The American crackdown on the Swiss bank account lark is forcing many into luxury high end property in London, Milan and elsewhere. I bet some of it is going into Auckland."

Joke of the week!

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The following article re HSBC's views on the dying carry trade caught my eye. Note the quoted "massively overvalued" Aussie dollar. 

http://www.cnbc.com/id/49269017

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#10 is a pearl.

I didn't think American politics could get any further off the planet than Sarah Palin, but Paul Ryan has managed to warp into a different universe.

Scary.

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"Car sales in Germany plunged in September, ending the country's surprising resistance to the ongoing crisis in the European automotive industry. Overall, the sector is facing its worst performance in the European Union in 17 years -- and there is no turnaround in sight."
http://www.spiegel.de/international/business/auto-sales-in-germany-slump-in-september-joining-european-trend-a-859221.html

Awful simply terrible...maybe the answer is to redesign the cars to crap out as soon as they age past three years at which time the Swine could raise WOF charges and car taxes and fuel taxes and RUC taxes and reg taxes....keep them and suffer..or..buy new and receive a subsidy!

And slap fat taxes on new bikes and footwear....surely the Swine are capable of boosting car production...think of the jobs Swine....think of your voter support!

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"Awful simply terrible"

 

Apparently GBH thinks bad economic news makes Baby Jesus cry. So maybe you now need to follow Bernards lead and start posting happy! happy! joy! joy! stories for GBH.

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