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Friday's Top 10 with NZ Mint: Chinese banks ramp up sales of 'Wealth Management Products'; 'It's the end of the world as we know it, and I feel fine'; Why the money printing central banks lose their political independence; Bernard wishes a Merry Christmas
Here's my Top 10 links from around the Internet at 2 pm in association with NZ Mint.
As always, we welcome your additions in the comments below or via email to email@example.com.
My must read is #1. I need to get out more. Merry Christmas to all. This is my last Top 10 for 2012. I'll be back from January 22.
1. It's all about the productivity, stupid - Here's the Economist with a useful discussion about how the developed world is going to ramp up real growth to dig itself out of the demographic hole it's with ageing populations.
Some say these ageing populations will be less productive (or at least not grow productivity as fast as in the past), and others say they may become more productive.
The doomsters argue we haven't been very good lately at inventing new ways to be more productive, and in particular, channelling the fruits of that productivity to consumers at large.
The optimists say the presence of all these older people will force capitalists to use capital more intensely to cope with looking after all these old people with a shortage of young people.
That's the argument in favour of more robot nurses and doctors.
AMERICA and Europe face a troubling demographic future. Declining birth rates will probably result in an older population and a smaller share of the population working to pay for their retirement. Does this necessary spell doom and gloom?
Megan Mcardle reckons so, but Dean Baker dismisses such arguments as “nonsense”. He shows that if productivity continues to increase (even at a lower rate than we’ve experienced historically) then we can still expect rising levels of prosperity. But which factor will dominate, aging or productivity, is uncertain. History is on Mr Baker’s side. Since industrialisation, each new cohort was more productive than the last. The productivity of labour depends on capital and innovation.
There are diminishing returns to capital, so sustainable increases in productivity come from new innovation. Ms McArdle, channeling endogenous growth models, is concerned there will less innovation in the future. Younger workers are more innovative and entrepreneurial; an aging labour force might mean much less or no productivity growth. Future productivity of labour will also depend on capital-intensity. An old population requires more people to work in labour-intensive jobs like elder care, there's not much scope to improve productivity of labour in such sectors—at least not in a humane way.
2. Print baby print - Hard on the heels of the US Federal Reserve's decision to print an extra US$40 billion a month, the Swiss National Bank has pledged to print more to defend its currency, or more correctly, repress its currency.
The SNB’s foreign-currency reserves have surged almost 70 percent over the past year to 424.8 billion francs ($459 billion) at the end of November as policy makers stepped up euro purchases to curb flows sparked by the region’s debt crisis. While the franc has weakened 0.8 percent since the European Central Bank pledged to purchase government bonds in August, Jordan said today the central bank doesn’t exclude any measure, when asked about possible negative interest rates.
“Global uncertainty will persist for the foreseeable future and drive demand for secure investments,” he said at a briefing in Bern. “As a result, the exchange-rate situation will remain fragile, despite the calmer environment that has come about as a result of the measures taken by the ECB. We cannot exclude the possibility that we will have to intervene substantially again.”
3. Don't blame the Romans - The legend of gold bugs everywhere is the decline and fall of the Roman Empire was caused by 'money printing' of its day, whereby the value of the 'nummi' was halved overnight.
The Roman hyperinflation period — constantly referred to by debasement obsessives — post-dates actual debasement by about 60 years. Using it as a justification for the hyperinflation is like suggesting that a hypothetical debasement in the 1950s could in some way be responsible for today’s economic woes.
Secondly, the Roman debasement was not a one off affair. History tells us that the Romans were “debasing” their currency successfully for many decades with no hyperinflationary consequences. What changed ahead of the hyperinflation period of the third century, however, was that the Empire’s political stability was being threatened.
4. The end of Independence? - ABC reports Glenn Stevens, the Reserve Bank of Australia's Governor, has warned central banks risk losing their independence if they get heavily into the money printing game.
Mr Stevens said central banks might face political obstacles as they tried to wind back such programs.
"The problem will be the exit from these policies," he said. "Ending a very lengthy period of guaranteed cheap funding for governments may prove to be politically difficult.
"There is certainly history to suggest that if we look back. And it's no surprise therefore that some people worry that we are heading a little bit at least back towards the world of the 1920s and the 1960s where central banks were captured by the government of the day for public debt interest reasons."
The detail is truly scandalous. Here's a piece detailing an easy way to make US$250,000 with the punch of a computer key. Sounds a lot like money printing...
This sort of stuff explains why so many are now so angry with banks generally. These banks have paid their fines and are continuing on their merry way, unhindered by regulators or any serious attempts to break them up. America even decided not to prosecute HSBC over money laundering failings because they feared it would damage the global financial system... Captured regulators and moral hazard.
“We need to bump it way up high, highest among all if possible,” Tan, known by colleagues as “Jimmy,” wrote in an instant message to Danziger, according to a transcript made public by a Singapore court and reviewed by Bloomberg before being sealed by a judge at RBS’s request.
The trader typically would have swiveled in his chair, tapped White on the shoulder and relayed the request, people who worked on the trading floor said. Instead, as White was away that day, Danziger input the rate himself.
The next morning RBS said it paid 0.97 percent to borrow in yen for three months, up from 0.94 percent the previous day. The Edinburgh-based bank was the only one of 16 surveyed to raise its rate. If it had lowered its submission in line with others, the cost of borrowing in yen would have fallen one-fifth of a basis point, or 0.002 percent, according to data compiled by Bloomberg. Even that small a move could mean a gain of $250,000 on a position of $50 billion.
6. Keep an eye on this - The WSJ reports Chinese banks are ramping up their sales of 'Wealth Management Products'...also known as Ponzi schemes.
To boost their deposit levels ahead of an expected year-end regulatory review, Chinese banks have recently accelerated their sales of high-yield investment products to customers, raising new concerns about the financial system and spurring the government to step up its oversight of the products.
Since late last month, banks of all sizes have increased their competition to attract deposits from middle-class savers by offering so-called wealth-management products. These WMPs, typically investment vehicles maturing in one year or less, pay much higher interest rates than regular bank deposits. Executives at some Chinese banks say they are now launching new WMPs daily, much more frequently than prior to the recent push.
Chinese bankers say there were similar races in the past, ahead of scheduled regulatory reviews of their loan-to-deposit ratios, but this year the competition is fiercer because banks are facing tighter funding conditions. Both bank lending and the broadest measure of money supply, M2, came in below analysts' expectations for November, data released Tuesday show, adding to concerns about a liquidity crunch as the year draws to a close.
The rapidly growing WMP market is causing concern among regulators. WMPs are pools of stocks, bonds, currencies or loans, repackaged by banks and marketed to their customers, much as mortgages were repackaged into securities for investors in the U.S. before the financial crisis.
8. Totally Jon Stewart on how he celebrates the Christmas season.
9. Totally Jon Stewart on the Mayan prophecy of the end of the world on December 21.
10. Totally one of my favourite videos and songs ever. This one goes out to Gummy, in particular.
11. Bonus video - Hadn't seen this before. A cracking speech for the ages.