Tuesday's Top 10 with NZ Mint: Should Tiwai Pt become a bitcoin mining data centre?; Why China's slowdown matters; Pollution bonds rather than taxes?; 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 to bernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must read today is #6 on how Germans are actually worth less than Cypriots. Really. 

1. The Chinese slowdown - I said last year the change of Chinese leadership would be the biggest thing to matter for New Zealand for years to come.

I said it would be more important than Obama's re-election or even Julia Gillard's ejection.

And so it has come to pass. 

The slowdown in Chinese growth is being engineered by China's new leaders Xi Jingping and Li Keqiang. They are wary of the wrong kind growth driven by debt-fueled infrastructure investment that simply inflates property prices and leads to debt bubbles later on. See # 9 for more on that. 

They want to see more consumption and a better kind of growth that isn't so damaging to the environment.

They also want to crack down on corruption.

Here's Bloomberg on how the corruption crackdown is actually starting to slow growth in the real economy.

Chinese President Xi Jinping’s campaign to rein in lavish spending by officials and state-owned companies is proving so effective that it risks helping end the nation’s economic rebound after one quarter.

Xi’s efforts are restraining consumer spending and making it tougher for the new government to boost domestic demand asfactory output slows. Large-restaurant and catering sales fell for the first time in more than three decades in the first two months of the year, while demand and prices for luxury items such as Moutai liquor and Longjing tea have slumped.

“The anti-corruption action by Xi is creating unprecedented phenomena, including an absolute fall in high-end restaurant sales,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong, who previously worked for the European Central Bank. “It’s certainly a big factor dragging down short-term growth.”

2. Not so virtual - The beauty of bitcoin seemed that it was so virtual and not connected to physical resources in any way. Except it is. Bitcoin 'miners' use large amounts of computational power (and electricity). An awful lot, Bloomberg reports.

Maybe we should turn Tiwai Pt into a data centre for mining bitcoins. Just kidding. Sort of. HT Jens via email.

Mining is a process in which powerful computers create Bitcoins by solving processor-intensive equations. The idea is to keep the supply of Bitcoins from multiplying too quickly. Bitcoin mining, like mining of precious metals, is supposed to be arduous. By design, the more miners there are, the more processing power is required to mint new coins. Most people aren’t used to thinking in terms of the energy it takes to solve math problems; a few minutes of Excel may not take much energy. But make the problems complicated enough, and things change.

“Mining” Bitcoins takes so much processor power that it’s often done with specialized computers optimized for rapid repetitive calculations. So how much power can that take? Blockchain.info, a site that tracks data on Bitcoin mining, estimates that in just the last 24 hours, miners used about $147,000 of electricity just to run their hardware, assuming an average price of 15 cents per kilowatt hour (a little higher than the U.S. average, lower than some high cost areas like California).

That, of course, is in addition to the money devoted to buying and building the mining rigs. The site estimates the profits from the day of mining at about $681,000, based on the current value of Bitcoins. So mining, at least for the moment, is a lucrative business.

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3. Just outsource it - The debate within New Zealand's building industry over materials cost inflation is brewing, and so is the appetite to buy overseas as the New Zealand dollar continues to soar. 

Maybe the manufacturing 'revival' linked to the earthquake rebuild won't last as long as some people say...

Anne Gibson at the NZHerald reports on the debate here, citing Ngai Tahu's property boss Tony Sewell.

Sewell said said his organisation was spending up to $100 million on new buildings yet he was extremely unhappy with procurement pricing.

He is concerned builders only source products such as cement in New Zealand.

"They're not spending the time it takes to really get into good procurement and scouring the world. They must be asking questions about why houses here cost $1600sq m to build when the same house and the same quality is half that price overseas. So why aren't they researching that? The answer is they don't have to buy locally," Sewell said.

"This is my interpretation: some people will pick up my challenge and go around the world and there could be a three-year repositioning and New Zealand players will get a pummelling, some of the middle men will be taken out of the scene and the market will reposition," he said.

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4. The Beveridge curve - The Atlantic reports on the relationship between long term unemployment and job openings. The moral/learning from the story. Don't become unemployed for a long time because the job openings start closing the longer you are unemployed.

It also raises the question: how fair on a particular age cohort is an intense and long period of unemployment in the economy. Just bad luck?

It turns out long-term unemployment is much scarier than you could possibly imagine. 

 

The results are equal parts unsurprising and terrifying. Employers prefer applicants who haven't been out of work for very long, applicants who have industry experience, and applicants who haven't moved between jobs that much. But how long you've been out of work trumps those other factors. As you can see in the chart below from Ghayad's paper, people with relevant experience (red) who had been out of work for six months or longer got called back less than people without relevant experience (blue) who'd been out of work shorter. 

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5. The Germans are the poorest and the Cypriots are the weakest - So says Wolfgang Munchau in this fascinating FT.com column about median net wealth across the Euro zone. He points out that a lot of Germans don't own houses, while the Spanish and Cypriots do. Munchau suggests it means someone's gotta leave the euro to reflect the real disparities in wealth, given wage and price inflation or migration won't do the trick. HT Tyler Cowen, who also has a nice discussion on the piece.

Measured in terms of the median, German households occupy the last place among all eurozone countries, with net wealth of a mere €51,000, while the median Cypriot household has net wealth of €267,000. The explanation for this gap is the low property ownership rate in Germany – well under 50 per cent. This means that the median German does not own a house, while the median Cypriot or Spaniard does.

In a monetary union, adjustment can only occur through real movements in wages and prices. Since Germany is not inflating, and is not likely to inflate in the future, I see no chance of that happening, even in the long run. My conclusion is that, in the long run, this adjustment will eventually happen through a nominal change in the exchange rates – which means that somebody has to quit the eurozone or resort to a parallel currency.

6. The Cypriot euro - Munchau concludes in his piece that there are now in effect different types of euro in the euro zone, which explains the capital flight to the north. The implication too is the German euro is massively under-valued. The implication for us is if the euro were to break up then all those cheap German cars we're now buying may not be so cheap any more.

Here's Munchau:

Looking back to 1999, my own experience was that restaurants and taxis in Berlin were cheaper than restaurants or taxis in Brussels or Paris, but the differences have now become extreme. Curiously, the price gap also affects tradeable goods: European cross-border retail markets are not working efficiently.

This leaves me to conclude that the unit of account is not really the same across the eurozone – that Spain and Germany have a different euro. This is also the reason why I believe southern Europeans have a rational reason to shift their savings to bank accounts in the north – because this would present the only way to preserve the value of their euros in the long run.

Of course, I would not expect the ECB or any other European institution to conclude that the euro is not the same in Germany as in Spain. It is their job to deny this. But the imposition of capital controls in Cyprus has set a precedent. It now has a new currency. I call it the Cypriot euro. According to the ECB’s study, Germany also has its own currency – the German euro – and it is massively undervalued.

7. Pollution bonds rather than pollution taxes - Here's a nifty idea to make sure polluters accurately pay the 'externalities' of their pollution over time. It's an alternative to a pollution tax. 

8. Land taxes on the Spanish - The Germans really, really don't want to bail out Southern Europe. Here's the latest ideas leaking out of the German think tanks to avoid Germans bailing out the Spanish, courtesy of Ambrose Evans Pritchard.

Senior advisers to Chancellor Angela Merkel are pushing for better-off households to pay towards the cost of any future bail-outs for the weaker members of the single currency.

The proposals, from members of Germany’s council of economic experts, raise the prospect of taxes being imposed on property in a country like Spain if its government was forced to seek a bail-out.

As well as inflaming tensions between Germany and its smaller southern partners, the suggestion could also mean that Britons with holiday homes are dragged deeper into the eurozone crisis.

9. How big is the Chinese debt ? - Reuters reports it may be much, much bigger than even the most pessimistic Fitch estimate used in its recent downgrade of China.

The agency, which downgraded the country's sovereign credit rating this week, puts China's overall sovereign debt at 74 percent of GDP by the end of 2012, of which 49 percent is central government and 25 percent is local.

Dealing with the systemic risk posed by local government debt is seen as one of the key priorities for the administration of China's new president, Xi Jinping. Fears about local debt first arose in the aftermath of Beijing's 4 trillion yuan stimulus package unleashed at the height of the global crisis in 2008.

Recent data indicates that, after stabilizing in 2011, local debt surged again last year as policymakers launched a new wave of infrastructure spending to stabilize the world's No.2economy amid its slowest growth in 13 years.

Fitch's debt-to-GDP tally is far greater than Standard Chartered's estimate of 50 percent for combined central and local debt. Beijing-based macroeconomic consultancy GaveKal-Dragonomics puts the combined figure at 49 percent, while Barclays says 62 percent. In fact, even Fitch's relatively pessimistic estimate may be too rosy.

The head of China's National Audit Office (NAO), which published a detailed survey of local debt in 2011, recently estimated current local debt outstanding at 15 to 18 trillion yuan -- equal to 29 to 35 percent of GDP -- by the end of 2012. That's well ahead of Fitch's estimate of 12.85 trillion yuan and an increase from the NAO's previous estimate of 10.7 trillion yuan in local debt outstanding by end-2010. A former finance minister, Xiang Huaicheng, said at a forum last week that local debt may total as much 20 trillion yuan.

10. Totally Jon Stewart on the 'Empire of the Gun'. Here's the first part.

And Part II