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Friday's Top 10 with NZ Mint: Basel betrayal; banking a war front; a Simple bank; dodgy signature; cost and return; Pigovian taxes; Dilbert, and more

Friday's Top 10 with NZ Mint: Basel betrayal; banking a war front; a Simple bank; dodgy signature; cost and return; Pigovian taxes; Dilbert, and more
11th Jan 13, 10:03am by David Chaston

Here's my Top 10 links from around the Internet at 10:00 am today in association with NZ Mint.

Bernard is on his summer break and will be back on January 22, 2013, from Wellington.

As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.

See all previous Top 10s here.

 

1. Betrayed by Basel 
British-American economist and critic Simon Johnson is spitting tacks about how and why the Basel III regulations got watered down.

He is now calling for the US to go its own way. 

The deeper problem with the Basel Committee is it overrepresents the euro-zone Europeans. Not only is the euro zone in great difficulty because of economic mismanagement, but its leaders are hoping to get out of their current predicament in part by relaxing bank regulation.

The idea that the Basel process is all about expertise – or smart people working out the right answers – is exploded by Sheila Bair’s book, “Bull by the Horns.” Read Chapter 3, in which she describes in convincing detail the fight over the Basel II agreement during the mid-2000s (and Chapter 4, which is more about how some United States agencies play against in each and on behalf their clients, the big banks).

What we saw before 2007 and what we see now is not officials applying some sort of optimization procedure or sensible independent thinking. Rather, this is about an industry that wants to take more risk because that is how it gets larger subsidies. And this industry is expert at playing the regulators off against each other, including across borders. The Europeans are again the patsy.

We need a financial sector that works for the real economy – not a continuation of the dangerous, nontransparent government subsidy schemes that have brought the Europeans to their knees.

2. 'Typical' housing
Do you have a mental idea of what the "typical American home" looks like? Well, they do a big survey every two years, and the latest data is out for 2011.

The answer is that it is 170 m2, three bedrooms, 2+ bathrooms, two stories, on a quarter acre, built in 1974, with gas heating, air conditioning, and a garage. Details here »  I wonder how a "typical New Zealand home" would compare. Anyone have our data?

​

3. Its war
Iran is retaliating for the sanctions imposed on it by opening a new batttle front - by attacking American banks. More from the NY Times:

The attackers hit one American bank after the next. As in so many previous attacks, dozens of online banking sites slowed, hiccupped or ground to a halt before recovering several minutes later.

But there was something disturbingly different about the wave of online attacks on American banks in recent weeks. Security researchers say that instead of exploiting individual computers, the attackers engineered networks of computers in data centers, transforming the online equivalent of a few yapping Chihuahuas into a pack of fire-breathing Godzillas.

The skill required to carry out attacks on this scale has convinced United States government officials and security researchers that they are the work of Iran, most likely in retaliation for economic sanctions and online attacks by the United States.

​​

4. Today's raw market data ...
A quick holiday update:

as at 11:10am Today
9:00 am		 Thursday Four
weeks ago		 One
year ago
         
NZ$1 = US$ 0.8439 0.8398 0.8431 0.7940
NZ$1 = AU$ 0.7971 0.7988 0.8012 0.7700
TWI 75.60 74.64 75.31 70.92
         
Gold, US$/oz 1,658 1,656 1,696 1,660
Dow 13,467 13,387 13,151 13,149
Copper, US$/tonne 8,059 8,051 8,048 7,690
Volatility Index 13.67

13.81

 17.06 26.04

5. Trying to be a banking disruptor
An Aussie software engineer is trying to wean people off having to use banks and is pitching his service to people fed up with them. He has discovered that you can do an awful lot with the transaction data being collected from your shopping, and this is the basis of his "better service".

Mr. Reich and a co-founder, Shamir Karkal, created Simple, an online banking start-up company based in Portland, Ore., that offers its customers free checking accounts and data-rich analysis of their transactions and spending habits.

Few entrepreneurs dare to set their sights on industries as large and entrenched as banking and expect to flourish. But Mr. Reich, 34, a professed data nerd who has built computers and tinkered with the innards of sophisticated cameras, holds a master’s degree in business and has a robust background in financial data analysis. He is confident that Simple’s minimalist approach — it promises not to charge any fees for any services — will draw fans and customers.

“Banks make money by keeping customers confused,” Mr. Reich said. “There’s no incentives to make the experience better.”

​​

6. Will this give you confidence in their currency?
The new US Treasury Secretary will be Jacob Lew. As such, his signature will be on all their currency notes. Now I have no doubt he is a very smart man, but really, he's got to be able to do better than the one he is currently using. This one is what he uses in his White House role.

​

7. Cost and return
The OECD has a truly huge database on education costs and benefits across almost all first-world countries. But how to make sense of it? To solve the problem it ran a competition and this is one of the finalists. The winner is here »

This is intriguing for New Zealand - it suggests we have a low cost, low benefit system. Based on this data, we are not really getting our money's worth. Your view? Click on this graphic and explore. You can look at many things, although it does just focus on senior secondary, and teriary.

​

8. The price of certainty
Retail electricity prices rose 5.6% pa in Q4 2012 according to the MED monitoring of all New Zealand power retailers. Lines charges rose 8.6%. Seemed high to me. We also monitor wholesale electricity market pricing on a daily basis, so I though a compaison between the two was in order. This is what I found.

9. Pigovian taxes
Adam Davidson would happily pay a congestion charge if it would only get other people off the road so that he could enjoy a less stressful journey. He explains on the NY Times:

According to an influential study by the I.M.F. economist Ian Parry, my hours on the road cost society around $10. Add up all the cars in all the traffic jams across the country, and it’s clear that drivers are costing hundreds of billions of dollars a year that we don’t pay for.

This is how economists think, anyway. And that’s why a majority of them support some form of Pigovian tax, named after Alfred Pigou, the early-20th-century British economist. Pigou developed the idea of externalities: the things we do that affect others and that the market is unable to price. A negative externality is like the national equivalent of what happens when you go to dinner with three friends and, knowing that you’ll pay only a fourth of the bill, decide to order an expensive entree. Pigou argued that there are so many damaging things that we do — play music too loudly, drive aggressively — and that we’d probably do less if we had to pay for them.

The idea of raising taxes to help society might sound like the ravings of a left-wing radical, or an idea that would destroy American industry. Yet the nation’s leading proponent of a Pigovian gas tax is N. Gregory Mankiw, chairman of President George W. Bush’s Council of Economic Advisers and a consultant to Mitt Romney’s 2012 campaign. Mankiw keeps track of others who support Pigovian taxes, and his unofficial Pigou Club is surely the only group that counts Ralph Nader and Al Gore along with leading conservatives like Charles Krauthammer, Alan Greenspan and Gary Becker as members.

10. Today's quote
"Your net worth to the world is usually determined by what remains after your bad habits are subtracted from your good ones." Benjamin Franklin

No chart with that title exists.

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23 Comments

by  Mike B  |  11th Jan 13, 3:32pm 1357871520

As far as all this stimulus and austerity is concerned perhaps we should have looked elsewhere. What would people like Silvio Gesell have done to solve the global financial crisis?

For the European crisis, my guess is that he would have printed a second currency, and perhaps called this money the Euro greenback dollar.

These greenback dollars would have been freely distributed throughout Europe, perhaps more so in Southern Europe. There would be three simple laws covering the greenback

a) it cannot be used to repay debt

b) retailers must accept, when offered, at least 50% of the purchase price in greenbacks

c) customers must accept, when offered, part, or all of their change in greenbacks

These greenback euros would start off at one greenback = one euro, then every month they would loose 10 cents value. That is, after one month, one euro = 90 cents greenback, after two months, one euro = 80 cents greenback and so on. Ater ten months they would be worthless.

Silvio Gesell believes that as the greenback is continuing to loose value the velocity of turnover will be very high and so stimulate the economy.

 

Would it work?

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by  powerdownkiwi  |  11th Jan 13, 4:14pm 1357874040

MikeB - no.

So many folk - and almost all economists - make the fundamental mistake of thinking money is either the problem, or that it can solve the problem. Money is never the problem, it's only a proxy itself, so obviously it can only be a proxy for the real problem.

The real problem is the inability to grow exponentially and forever, within a finite sphere of operations.

That goes for the planet, for NZ, and for the back paddock - the carrying-capacity is merely scaled. We are at the point where the next 'doubling' is impossible, physically, globally. Even if one more 'doubling was possible, you could pick your percentage and plot the cessation-point (3% doubles 24 years, therefore 2036, for instance). 

The fiscal system's fatal wee flaw, is that it is always well ahead of itself, in terms of underwrite. Think working-off a 30-year mortgage, even with no interest. So it was going to be in trouble growth-wise, much earlier. No amount of magic sleight-of-hand can alter the lack of physical underwrite, and untill that particular penny is dropped :) we aren't going to address what really lies ahead.

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by  powerdownkiwi  |  12th Jan 13, 9:19pm 1357978797

Mist - that's not so much bollocks, as deckchairs.

 

None of your assertions are causal - all are in fact secondary reactions to the major input-change.

 

Larger and larger amounts of fossil energy applied to all things, including agriculture.

 

That's it. All the 'economics' nonsense is reading what could happen - temporarily - atop that supply. You don't get it, and you don't get it in spades. Many many words but no sense.

 

 

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by  powerdownkiwi  |  13th Jan 13, 3:25pm 1358043928

Mist - close; step back one more cognitive pace........

 

That capital, that profit you crave, is?

 

Either issued debt (which relies on some future underwrite, or it's so much worthless paper) or it's real wealth, representing the doing of something, to/with something. In other words, real non-debt capital represents energy expended.

 

Which means your shortage of capital/profit, is actually a shortage of energy. There's a bit more to it, of course - farmers have been 'price takers' rather than 'price makers' for years, witht the exceptions of the co-op's, and ain't it a marvel how they get diluted?

 

We agree that there are a lot who expect income without doing anything to underwrite themselves real-time (a lawyer charging x dollars an hour, then expecting to buy a 'Beamer is a classic example - but all financial, legal, educational, health and a lot else incomes, are at the end of the day reliant on someone else doing something real. After all, they expect to buy something real with their 'income', don't they?

 

We all do it - but it could only be continued as a system while huge amounts of energy were thrown at it, in lieu of.

 

Gonna be interesting - whether we see a gradual saw-tooth descent over a decade or so (we're 5 years into the decline now) or a sudden failure of the fiscal system, under overwhelming pressure.

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by  steven  |  14th Jan 13, 7:41am 1358102492

Debt is an IOU, a promise to pay back with work/energy, or a good with work/energy in its making.

The debt has been taken out on the assumption of a return in a business as usual scenario.

Which is why I suspect so many ppl are unable to consider that there is no business as normal.  This is a human, cognitive dissonance that is over-powering it seems ( http://www.simplypsychology.org/cognitive-dissonance.html ).

Which leaves us with what happens when it becomes bleeding obvious that isnt the case.  At the micro level, the stupids that have bought yet more property, shares etc based on the assumption that there are bigger fools to sell to are going to be left with no where to go (just look atthe tulip mania or better the 1929 stock market crash for that outcome).  At the macro level, that means they and the lenders will be bankrupt, which means someone(s) going to be expected to bail them, the PAYEs by the look of it. Maybe it will be Iceland en-mass, debt jubilee seems the only way.

Then there are all the other aspects, energy and resource hoarding at National and personal level will be rife.  The onnly way this has worked out previously is cuba, the libertarians will be besides themselves at that thought......welcome to the long emergency.

regards

 

 

 

 

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by  KH  |  13th Jan 13, 7:01pm 1358056919

PDK.  I largely agree with your view on limits to growth.  But using it to explain everything is not always useful.

In particular I liked your paragraph.  "So many folk - and almost all economists - make the fundamental mistake of thinking money is either the problem, or that it can solve the problem. Money is never the problem, it's only a proxy itself, so obviously it can only be a proxy for the real problem."

But maybe sometimes the problem is too much consumption and not enough production.  Spending more than you earn might be just because of your poor decisions and attitude.   Not the limits of the planet.

Trillion dollar coins and similar daftness, are a spurious solution to a real problem.  Like your paragraph says.

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by  steven  |  13th Jan 13, 7:36pm 1358059007

You agree yet your next 3 paras say you do not, or certainly do not understand. The maths is very simple, expotential growth means an infinite resource, or a flat earth is needed. So when you say not enough production, what you are saying is, lets have a higher expotential curve.

Doesnt work, not for ever.

Take the biggest problem, china expects to grow at 10% per annum, that expotential function says its economy doubles every 7 years.  Where is the oil, raw materials, energy going to come from to do that?  Where is the second planet of ppl ready to buy?.  14 years from now where are 2 more planets? 

Our problem is we are now on the vertical bit of the curve and too many ppl either dont see it or dont want to, ergo there is going to be a big mess.

regards

 

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by  KH  |  13th Jan 13, 8:55pm 1358063729

You missed the point Steven.  The exponential growth topic is the not only one in town. Thank you for the update on that one.  I don't argue with it but was suggesting there are other topics in addition. 

The USA has for years spent more tax than it gathers.  And has been warding of the inevitable. It's come home to roost.  Unreality in the discussion to the point where some talk of trillion dollar coins takes place.  And other such frappery.  Thus the discussion on Proxies etc that led off this discussion.

 

 

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by  steven  |  13th Jan 13, 9:32pm 1358065924

KH, with due respect it is the only one that really matters.  Its like building a castle on quicksand and keeping adding wings, its going to fall down, no matter what.

So sure lets take the US debt as an example. The entire debt is built on the assumption that the USA will pay the interest and capital back. That assumption is based on business as usual and cheap and abundant energy.   If you look at energy cost as a % of GDP when it rises to about 6% the USA goes into a recession, that was about $120~150USD a barrel in 2008.  Now we see oil at the $95~110USD mark, at that point there is little left for growth.  So really the crux is the US wont be able to pay it back, they have to default or print worthless paper, the only Q is when. Personally I would say within 5 to 20 years, hard to know really humans are involved....

In terms of the platinum coin its an artifical construct to get around an artificial construct (debt ceiling) that is being used by extremists (Republican party) to de-rail democracy.

In terms of the US debt, actually at its present level it is no immediate problem, it could actually be solved with some tax increases and simplification of the US tax code removing all the excemptions/dodges, then removing much of the prok barrel politics.  Instaeed right now the risk is flipping the world into a 1930s scale Great Depression, personally I'd like to avoid that if possible.

 

 

 

 

 

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by  scarfie  |  13th Jan 13, 9:47pm 1358066834

So many folk - and almost all economists - make the fundamental mistake of thinking money is either the problem, or that it can solve the problem. Money is never the problem, it's only a proxy itself, so obviously it can only be a proxy for the real problem.

 

That is a ripper PDK, worth keeping and repeating.

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by  Wolly  |  11th Jan 13, 4:22pm 1357874540
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by  muzza  |  12th Jan 13, 2:47pm 1357955241

Yer right ! Why not try being a bit more positive this year?

 Off to Israel tomorrow, their economy is looking really good,  exports are now in excess of imports so no balance of payments issues

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by  farfields  |  11th Jan 13, 6:01pm 1357880496

Have we had any mention or discussion of the Trillion Dollar Coin yet?

http://m.theatlantic.com/business/archive/2013/01/everything-you-need-t…

Would be another great chapter in the US fiscal saga. 

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by  dh  |  11th Jan 13, 6:42pm 1357882977

#7 Reading the OECD definition of net public benefit, NZ's figures are pretty clear explained by well educated students hitting a low wage economy. I suppose you could argue, as you do by suggesting we are not getting our money's worth, that we should not invest as much in our workforce. I prefer to argue that NZs economic incentives are all about capitals gains and minimum intelligence added bulk commodity production, rather than a productive value added sector, and the nation needs to lift it's game about where the incentives are.

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by  Brendon  |  11th Jan 13, 8:36pm 1357889760

Education from an economics point of view is a funny good. An economics professor once told me in passing that education cannot be owned. What he meant was that a business might want to invest in upskilling a particular worker. But that worker is free to take those skills elsewhere, including competing businesses. This leads businesses to underinvest in productivity raising skills.

Individuals could choose to pay for their own skills, but they are taking a gamble on the market. They do not know what is being demanded and how many others will also be upskilling in competition with themselves.

The result is that for high skill industries to prosper their is some sort of partnership between business and government in the training of skilled workers. Thus the vision of where a country, state or other governmental area is headed is key.

For New Zealand this is a problem because historically we have relied on immigrants to supply us with our missing skills. And perhaps even more importantly our vision of what we are good at has been very farming based.

So it is no surprise that we have a low skill economy where we get very little return from our secondary and tertiary education investment.

This is depressing because our primary schooling is up there with the best. Our 15 year olds international PISA results are better than the other native english speaking countries and up there with countries like Finland and South Korea that have transformed their economies with high skilled industries.

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by  Wolly  |  12th Jan 13, 11:13am 1357942388

"When Matthew Fraher left for Australia in 2000, he says, he was required to pay back as much on his student loan as his entire income, within a year."

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10858618

How is it possible to grow a $70,000 debt on a three year political science degree????

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by  iconoclast  |  12th Jan 13, 11:47am 1357944466

The dark art of deception and mis-information.

Must have done at least 70 papers and triple degrees.

Of course, some people just can't make their mind up, enrol in a paper, get half way through, drop out and switch over to another subject, ka-ching, another course-fee.

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by  iconoclast  |  12th Jan 13, 11:59am 1357945197

And he brings up the hoary old "they got free education before the introduction of student loans - they "didn't pay a dime and they're having a go at us".

He doesn't explain what the $70,000 was for

Back then, In those days you were on a very short leash in the first year, you had to perform. Fail 2 papers, go up before the dean. A simple choice, leave or pay full fees. Back then, a lot of students WERE paying fees. Are the tertiary institutions as ruthless today as they were then?

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by  iconoclast  |  12th Jan 13, 12:13pm 1357946019

My partners daughter is 25 year old. Did a 4 year BA degree (Hons). Has had a part time job since the age of 15. Paid her way herself without financial assistance from her mother. Paid her course fees as she went. Total cost just under $30,000. Graduated 2 years ago. Debt free.

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by  mich  |  12th Jan 13, 5:02pm 1357963334

9.Pigovian taxes. I'm all for it. Let's begin with taxing economists millions and millions, per year, each, for their "externalities".

 

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by  Zeebeck  |  13th Jan 13, 10:32am 1358026344

#5 Are banks an unnecessary evil.??

Firstly is their function able to be replicated through other means?

Can a more transparent and less self serving system be set up?

Can we structure a financial centre or money exchange that carries out the required function and benefits NZ more?

would NZ society be better off with such a system?

Answer ?.........

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by  dh  |  14th Jan 13, 8:26am 1358105171

The difference between entre­pre­neurs and man­agers (according to MIT brain scan research)- Managers use half their brain, entrepreneurs use all their brain.

http://www.networkworld.com/community/blog/why-entrepreneurs-innovate-b…

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