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- What happened Friday 13
- Friday's guest Top 10 12
- 90 seconds at 9 am: US Fed ends QE 12
- HSBC offers one year mortgages at 5.39% 9
- Luxury waterfront apartment fails to sell for $195,000 9
- 90 seconds at 9 am: US grows strongly 6
Thursday's Top 10 with NZ Mint: Toronto building 144 skyscrapers full of apartments; American sequester layoffs loom; China's 'Cancer Villages'; 72 is the new 30; Europe's debt delusion; Dilbert
Here's my Top 10 links from around the Internet at 9.30 am 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 today is #6. John Plender nails the current economic problems by focusing on the shift in income share from labour to capital, and how the social contract of encouraging borrowing to enable that is breaking down.
1. Sequestering a weaker economy - Keep an eye on this one over the next couple of days.
CNN reports the compulsory US government spending cuts due to start kicking in from Friday could cut up to 800,000 jobs and carve about 0.5% off US economic growth.
Everyone assumes a last minute deal to delay or kick the can down the road will be done.
But the smoke signals from Washington on this are not good.
Layoffs are already starting.
This is the last thing the world's biggest economy needs.
2. So how would an Italian bailout work now? - Nils Pratley at The Guardian tries to work out how the European Central Bank could bail out Italy without an effective government in charge.
It wouldn't be easy.
The open question is what the pledge by Mario Draghi at the European Cental Bank to do "whatever it takes" to save the euro would mean if Italy, in the midst of political gridlock and confusion, were to need a bailout. Remember that the critical feature of the ECB's revamped Outright Monetary Transactions (OMT) scheme is "strict and effective conditionality" – in other words, a hard-and-fast reform programme, with the International Monetary Fund involved in its design and monitoring.
But how do you negotiate if there is no stable government in place to request a bailout, or indeed negotiate a strong conditional programme of reforms when Italians have registered such an unmistakable anti-austerity vote? Current bond yields suggest a touching faith that a workable political fudge will emerge sooner or later. What if it doesn't? What if those Italian yields do start to rise to unaffordable levels?
Something has to give if the euro crisis is not to explode again. The subtle message of the election, as Lombard Street Research puts it, is that this was a vote against austerity. Over half the votes were shared between Grillo, arguing for a referendum on the euro and floating the idea of Italy defaulting on some of its debts, and the irrepressible Berlusconi. It's an astonishing result.
"Cheap, populist policies, certainly. But that is exactly what happens if you try to fight depression using austerity alone," comments Lombard's Dario Perkins.
3. Canada's looming Condo Crash - Bloomberg reports on the stunning growth in supply of apartments in the Canadian city of Toronto. If only we could build this many apartments (or any houses for that matter) this quickly we might actually get prices (in Auckland in particular) down to some affordable levels.
Toronto is awash in real estate. There were 144 skyscrapers under construction in late February, more than in any other city in the world, according to SkyscraperPage.com. Proposals for new condos reached 253,768 units at the end of the fourth quarter, up 10 percent from a year earlier, Toronto-based research firm Urbanation Inc. says. Four luxury hotels, each featuring condos, have opened in the past two years.
“If the city is any indication of what’s going on in the country, it’s over-reliant on its housing sector,” Crockett says, pointing out a window of a downtown coffee shop to dozens of cranes swinging across the skyline. “I’m afraid of a condo crash, and then what will happen to all the investments?”
Canada’s property blitz is winding down just as U.S. housing perks up. Construction of new Canadian homes plunged 19 percent in January from December to the lowest number since the end of 2009; sales of existing homes fell 8.8 percent from a year earlier. Toronto suffered a 36 percent decline in new condo sales in 2012 from 2011; resales dropped 10 percent, the first annual decline since 2008, Urbanation says.
4. Capitalism isn't working - Here's Richard Woolf talking to PBS' Bill Moyers about the failures of capitalism. Hard to imagine this sort of thing being discussed on a major US television programme just a few years ago. HT Naked Capitalism.
5. 'Cancer villages' - Bill Bishop from Sinocism writes at the New York Times about new Chinese leader Xi Jingping's growing concern about China's environmental problems.
China's media is being freed up to report on them and and Xi seems to be planning significant action.
The environment is likely to be on the N.P.C. agenda. Smog continues to plague much of China, and there are increasingly dire reports about water pollution, food pollution and soil pollution. For the first time, the government officially admitted the existence of a large number of “cancer villages” caused by pollution.
In addition to allowing much more open reporting on the environmental degradation, Beijing is also taking steps to address what increasingly appears to be one of the biggest risks to the Community Party’s rule and China’s future development. Examples of policy responses include a plan to investhundreds of billions of dollars on water projects over the next 10 years, a new environmental tax, much stricter fuel emission standards for new cars in Beijing and a requirement that companies in heavy pollution industries buy environmental damage insurance.
6. Europe's debt delusion - The FT's John Plender has written an excellent summary of the current state of play in Europe and across the world.
The post-election deadlock in Italy is an uncomfortable reminder that the developed world’s sovereign debt problem ultimately boils down not just to bad economics but to a failure of democracy. Over many years, the share of wages in national income stagnated or declined while a dramatic increase in the profit share contributed to the high levels of inequality that now blight the rich world.
The political response to this challenge in the Anglosphere and in Spain was a social contract based on encouraging the illusion of wealth through credit-fuelled housing bubbles and increased social transfers. Unaffordable promises were the order of the day, too, across much of the eurozone. Debt problems were then compounded by the flawed construction of the monetary union.
The fragility of a eurozone banking system that is overloaded with sovereign debt will once again be a cause of nervousness. Instead of a new social contract, we have a non-contract whereby southern Europe endures austerity with high unemployment and growing social strife while northern Europe provides no fiscal stimulus to allow southern austerity to work. So the medicine continues to increase public sector deficits and debts as economies fall into depression.
7. China tightening shadow bank rules - The FT's Simon Rabinovitch writes that China's authorities are trying to rein in the shadow banks that have popped up like a case of the hives in the last year or so. They are the finance companies of China and are just as closely connected to dodgy property developers as ours were.
Remember, any restriction on the fast credit growth in China over the last 9 months will probably slow growth there, particularly in infrastructure projects. Australia will be watching closely.
China will rein in its shadow banking system by requiring banks to provide greater disclosure about their off-balance sheet activities, according to people briefed on the new rules. The Chinese shadow banking system – credit flows beyond traditional bank loans – has quadrupled in size since 2008 to about Rmb20tn ($3.2tn), or 40 per cent of economic output.
These flows were crucial in reviving the country’s growth last year. But banking analysts and rating agencies have warned that they pose an increasingly serious risk to Chinese economic stability. There is also discussion about whether to establish a hard cap on the number of off-balance sheet investment products that banks can issue as a percentage of their assets.
Taken together, the new regulations could lead to a slowdown in the explosive growth of China’s shadow banking by making it tougher for banks to funnel deposits into off-balance sheet vehicles.
8. Japan's real problem - HSBC Economists Frederic Neumann and Izumi Devaliera point out in this WSJ opinion piece that Japan's big problem is its shrinking population of working age people. They say structural and migration reform are the best remedies, rather than money printing.
Since 1997, the working-age population has shrunk. This means fewer consumers, and older workers—hardly the stuff of economic vitality.
To turn the demographic tide, Japan must open itself to immigration. The foreign-born share of the population is a mere 1.7%, well below the 14% in the United States. Only Chile and Mexico rank lower among the economies in the OECD. Despite a fast-rising number of elderly citizens, certification requirements and immigration restrictions for foreign health workers—not doctors, but less-trained health aides and carers—are virtually prohibitive.
Boosting the participation of female workers would be another strategy to counter Japan's demographic malaise. Japan's female labor participation rate lags behind its OECD peers. Enabling more women to seek jobs would help replenish the labor pool. Culture only partially explains this. Tax laws distort incentives for women to work, for instance by offering a generous tax exemption for a household's second income, but only up to a cap that effectively encourages women to stick to part-time jobs. And child care facilities for working mothers remains a rarity.
9. 72 is the new 30 - The FT reports on new research on ageing Swedish and Japanese men suggesting a vast improvement in life expectancy since 1990. It raises some uncomfortable questions. How much money should be spent extending life? Who will pay for it?
Researchers at the Max Planck Institute for Demographic Research in Rostock, Germany, said progress in lowering the odds of death at all ages has been so rapid since 1900 that life expectancy has risen faster than it did in the previous 200 millennia since modern man began to evolve from hominid species.
The study, published in the Proceedings of the National Academy of Sciences of the United States, looked at Swedish and Japanese men – two countries with the longest life expectancies today. It concluded that their counterparts in 1800 would have had lifespans that were closer to those of the earliest hunter-gatherer humans than they would to adult men in both countries today. Those primitive hunter gatherers, at age 30, had the same odds of dying as a modern Swedish or Japanese man would face at 72.
Scientists who worked on the study said it was unclear what the possible upper limit for life expectancy would be. “How much longer can we extend life?” said Oskar Burger, lead researcher on the study. “We just don’t know.” The study did not try to draw conclusions about whether the extension of human life was moral or desirable, or whether it could occur without depleting the faculties needed to enjoy the extra years.