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- 90 seconds at 9 am: Financial stress widens 6
- Big bank dividends reach NZ$2.6 bln 3
Friday's Top 10 with NZ Mint: Innovation crisis or deleveraging crisis? Or maybe it's both? Fine not-so-young corporate cannibals; How a Ferrari crash changed China's leadership succession; Mr Burns and the fiscal cliff; Clarke and Dawe;
Here's my Top 10 links from around the Internet at 11 am in association with NZ Mint.
As always, we welcome your additions in the comments below or via email email@example.com.
My must read is #9. It's just a chart that tells the economic history of America. The first 4 cartoons today are mostly about the very Autumnal fiscal statement in Britain, which pledged yet more austerity, even slower growth, a delayed budget surplus and higher debt. Rinse and repeat. Just nuts.
There's a live debate around at the moment about why economic has slowed to not much, despite 5 years of waiting for recovery.
There's a group, including tech entrepreneur Peter Thiel, who believe we haven't invented enough new technology in recent years to power future growth.
There's another camp who say it's a natural result of a financial crisis and too much debt that needs to be deleveraged away in slow period of saving and financial repression.
Rogoff wrote the seminal 2009 paper (and then book) on the effects of deleveraging on growth with Carmen Reinhart. He still thinks it's the debt, rather than the innovation, that's slowing things down.
Or maybe it's both?
There are certainly those who believe that the wellsprings of science are running dry, and that, when one looks closely, the latest gadgets and ideas driving global commerce are essentially derivative. But the vast majority of my scientist colleagues at top universities seem awfully excited about their projects in nanotechnology, neuroscience, and energy, among other cutting-edge fields. They think they are changing the world at a pace as rapid as we have ever seen. Frankly, when I think of stagnating innovation as an economist, I worry about how overweening monopolies stifle ideas, and how recent changes extending the validity of patents have exacerbated this problem.
No, the main cause of the recent recession is surely a global credit boom and its subsequent meltdown. The profound resemblance of the current malaise to the aftermath of past deep systemic financial crises around the world is not merely qualitative. The footprints of crisis are evident in indicators ranging from unemployment to housing prices to debt accumulation. It is no accident that the current era looks so much like what followed dozens of deep financial crises in the past.
Central banks are straining to produce inflation but developments in emerging markets (i.e. China) suggest a deflation shock is now likely. The Capital exodus from China is disrupting the creation of inflation.
3. Euro-democracy's future - Antony Beevor, the famed historian of the Second World War, writes about his worries about democracy in Europe.
The memory of the second world war hangs over Europe, an inescapable and irresistible point of reference. Historical parallels are usually misleading and dangerous. The threat of economic collapse now is not the same as the threat of Nazism and war. But the current crisis still poses a threat to parliamentary democracy in Europe. It may awaken the nationalist monsters which the European ideal had tried to consign to history.
The general public as a whole is as badly informed today about the dangers facing the eurozone as the populations of Britain and France were in the late summer of 1938 during the Czechoslovak crisis. The poet WH Auden called that period “a low, dishonest decade.” Politicians have to sell hope. No Cassandra ever won an election. Churchill, who had been dismissed as a war monger, only came to power after the crisis had broken in all its fury.
When my book on the Spanish civil war was published in 2005, journalists in Madrid asked me in all seriousness whether it could ever happen again. I replied that thank goodness the same conditions simply did not exist. The vicious circle of fear between right and left, which had originated in the extreme cruelty by both sides in the Russian civil war, did not exist.
What happens when an over-valued currency meets a political leader seemingly bent on imposing his vision on a battered central bank? Watch Japan, soon-to-be Prime Minister Shinzo Abe and the yen in 2013 to find out. (Spoiler alert: the currency gets it in the end.)
5. Huawei debate not going away - Reuters reports Huawei tried to sell equipment to Iran to let it spy on mobile phone users...
A Reuters investigation has uncovered new evidence of how willing some foreign companies were to assist Iran's state security network, and the regime's keenness to access as much information as possible.
Documents seen by Reuters show that a partner of China's Huawei Technologies Co Ltd offered to sell a Huawei-developed "Lawful Interception Solution" to MobinNet, Iran's first nationwide wireless broadband provider, just as MobinNet was preparing to launch in 2010.
The system's capabilities included "supporting the special requirements from security agencies to monitor in real time the communication traffic between subscribers," according to a proposal by Huawei's Chinese partner seen by Reuters.
6. A fateful Ferrari crash - The New York Times reports on how a Ferrari crash and the subseqent cover-up altered the succession of China's new leadership.
The outlines of the affair surfaced months ago, but it is now becoming clearer that the crash and the botched cover-up had more momentous consequences, altering the course of the Chinese Communist Party’s once-in-a-decade leadership succession last month.
China’s departing president, Hu Jintao, entered the summer in an apparently strong position after the disgrace of Bo Xilai, previously a rising member of a rival political network who was brought down when his wife was accused of murdering a British businessman. But Mr. Hu suffered a debilitating reversal of his own when party elders — led by his predecessor, Jiang Zemin — confronted him with allegations that Ling Jihua, his closest protégé and political fixer, had engineered the cover-up of his son’s death.
8. Cannibalising each other - As the pressure on government finances intensify, companies are proving very effective at playing state and national governments off against each other in the contest for new jobs.
The companies demand big tax breaks and subsidies to set up their operations in one place rather than another. The whole process ends up ratcheting down corporate tax rates all around the world.
The relevance of course for New Zealand is how we were gamed by Warner Bros over the Hobbit movies.
The other interesting aspect is the identification of the agents who do these dodgy deals.
The WTO is the only body that’s threatened to provide any sort of meaningful check on this sordid dynamic, ruling that several billions of such subsidies to Boeing were problematic — but that European subsidies to Airbus were even more severely infringing.
Perhaps the most transparently absurd manifestation of war-between-the-states phenomenon is the case of the film tax credit, driven by the movie industry’s exploitation of star-struck state legislators who seem to believe that the likes of Boise and Des Moines stand to become the next Hollywood. The film tax credits spurred the most precipitous race to the bottom I’ve witnessed in my time in politics. It came to a head in 2009, when Wisconsin had just spent $100,000 dollars to support Johnny Depp’s personal grooming expenses and Connecticut was fixing to subsidize episodes of Jerry Springer’s talk show — lots of broken chairs to pay for. The capstone of this farce was California’s institution of tax credits to entice productions back to Hollywood.
9. The chart says it all - Courtesy of Joe Wiesenthal at Business Insider, here's a chart showing the corporate profit share in the US economy since World War 2 (red line), compared to the wages share of the US economy (blue line).
Suffice to say, the big change in the late 1990s to deregulate banking systems and gear up coincided with a structural shift higher in the corporate profit share and a structural shift lower in wages.