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Tuesday's Top 10 with NZ Mint: Why the developed world will have to find new ways to employ people on high wages; Push your car dealer hard for lower prices; 'Australia's housing bubble the world's biggest'; Dilbert

Tuesday's Top 10 with NZ Mint: Why the developed world will have to find new ways to employ people on high wages; Push your car dealer hard for lower prices; 'Australia's housing bubble the world's biggest'; Dilbert
<a href="http://bit.ly/107VHl0">Five key reasons people buy gold and silver</a>

Here's my Top 10 links from around the Internet at 10 am 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 is #2 from Walter Russell Mead on the problem with jobs in the developed world. HT Waymad. A cracker: "Is the new economy locking us into permanent inequality, insecurity, polarization and class conflict?" He's ulitmately hopeful, but nails the challenges. 

1. Push your car dealer hard - Anyone thinking of buying a new or used Japanese car any time in the next six to 12 months should read this research from independent economist Rodney Dickens over at SRA.

It shows that car prices and car part prices often fall significantly in the following 9 months after the New Zealand dollar appreciates versus the Japanese yen. 

The New Zealand dollar has risen 44% vs the yen in the last year, with most of that increase in the last six months on the anticipation and then confirmation of 'Abenomics', a plan to double Japan's money supply in two years.

I've seen a few ads for new Japanese cars for less than NZ$20,000, but the big shift in the currency has yet to feed through.

Rodney uses this chart below to show how soon car prices might drop and by how much.

If I was buying now I'd be trying to drive a very hard bargain to pull forward some of this change.

Print out Rodney's note and take it to your dealer! 

The chart shows a general inverse relationship between the annual % change in the NZD/JPY (right scale) and the annual % change in motor vehicle and parts prices as reported by Statistics NZ (left scale). It isn’t a perfect relationship, but more often than not significant appreciations in the NZD/JPY have been followed, three quarters later on average, by moderate falls in motor vehicle and parts prices.

The lagged impact is reflected in the chart by the red NZD/JPY line being advanced or shifted to the right by three quarters. Other factors can have a significant impact at times, but the odds probably favour a moderate fall in motor vehicle prices over the next three quarters.

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2. The problem with jobs - The American Interest has a very thoughtful piece here on how the increasing automation of production of both products and services is reducing the breadth and depth of high paid manufacturing and services jobs in many developed economies. HT Waymad in the comments of yesterday's Top 10.

The ways many multinational companies are able to use globalisation to reduce their unit costs and elevate profits is deepening this jobs crisis. 

Maybe a new industry will turn up that needs lots of highly skilled and highly skilled humans who can live in these developed countries. It's happened before after the big shift in the workforce from the farm to the factory between the late 1800s and the mid 1900s.

There are now pockets of these high paid and high skilled jobs in places like Silicon Valley and Hollywood, but only pockets and the scale of the income and wealth inequality is vast.

That step change in the global economy between 1880 or so and 1960 was epic and caused massive disruption. We had two awful World Wars as a result (partly) of that epic shift. 

Here's hoping we can manage another transition without renewed social conflict. Here's Walter Russell Mead at the American Interest:

We are seeing the greatest wave of economic transition since the mechanization of agriculture reduced the percentage of the labor force engaged in farming from more than half the American labor force in 1890 to less than two percent today.

The old engines of job growth, especially in manufacturing, aren’t working, and the competition for good jobs keeps getting tighter. With the entry of billions of Asians and others beyond the old industrial economies of North America, Europe and Japan into the modern economy, the competition is global. And if low wage workers can’t do the job cheaper than you, computers and, increasingly, robots mean that you can still lose your job.

his is an economy that produces inequality very different from what most citizens of the old industrial economies are used to, and the social and political consequences of rising inequality play a growing role in many countries who once prided themselves on their success in building a vast and stable middle class.

Much of the inequality is generational. For many young people, the road to a middle class job is harder than ever before: more years of school, more years of debt, more internships, more years of scrabbling after graduation until that first real, career building job comes through.

Is the new economy locking us into permanent inequality, insecurity, polarization and class conflict? Are we at the early stage of a Great Unraveling that will roll back the clock on the social achievements of the twentieth century and fall back from Blue Model Fordism to Victorian capitalism red in tooth and claw?  People in Italy and France are asking this as much as people in California and Connecticut; these changes in the labor market are stirring huge and justifiable anxieties across the entire developed world.

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3. The pain in Spain - Is falling on the plain and in every other place. Ambrose Evans Pritchard reports on what a leading Spanish bishop is saying about austerity, unemployment and risk of social turmoil in Spain.

"We have to change direction, otherwise this is going to bring down whole political systems," said Braulio Rodriguez, the Archbishop of Toledo.

"It is very dangerous. Unemployment has reached tremendous levels and austerity cuts don't seem to be producing results," he told The Telegraph.

"There is deep unease across the whole society, and it is not just in Spain. We have to give people some hope or this is going to foment conflict and mutual hatred."

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4. Money squirting everywhere - China's money supply grew 16.1% in April from a year ago, Bloomberg reports. Of course, some of it is going to squirt out the sides and trickle down to places like New Zealand.

The worrying thing is that money supply growth is currently running twice as fast as economic growth. There are big structural problems in the Chinese economy.

“There are few signs of renewed dynamism” in economic growth, Standard Chartered analysts led by Stephen Green, head of Greater China research in Hong Kong, wrote in a report dated May 10. “Credit growth should support near-term activity, though it raises questions about leverage, credit quality and growth sustainability in the next few years.”

Aggregate financing was a record in the first three months and new yuan loans were the most for a quarter in almost four years, spurring concerns that faster credit isn’t translating into economic growth.

The central bank said this week that it will use various tools to guide “stable and reasonable” growth in money supply and credit. “The negative spillover effects from loose monetary policy in major economies are growing, which has helped pro-cyclical credit expansion at home,” the PBOC said.

5. Freeing up capital flows - Xinhua (China's Pravda) reports one of the solutions for China's structural problems is to liberalise capital flows in and out of China as part of a plan to free up the currency from its current crawling peg.

It looks like some real reforms were agreed over the weekend.

China only allows a limited number of financial institutions to buy stocks and bonds overseas, as it fears demolishing its currency curb could trigger a capital flight and lead to instability of the financial market in the world's second largest economy.

"It's not a surprising move. The regulators have been inching towards an opened capital account," said Yao Wei, China economist with Societe Generale. "An opened capital account will make China's financial market more efficient, more transparent, and up to international standards."

Capital inflows to China have been surging as indicated in recent trade data, and with major central banks pumping cheap money into financial markets, relaxing capital regulation would entice more hot money given big spreads between Chinese and foreign interest rates, according to Liu.

6. Sweeping Chinese reforms - John Garnault is an excellent observer from within China from an Antipodean point of view.  He lives in China, but writes for the Sydney Morning Herald.

This is my second must read today.

China is drawing up a blueprint for sweeping reforms aimed at averting an economic crisis, sources with close ties to the leadership say. The reforms are aimed at revitalising the world's second-largest economy amid deepening fears about a trend of rising corruption, wasteful investment and local government debt.

Liu He, who leads the party's Central Leading Group on Financial and Economic Affairs, has been given the task of preparing a seven-point blueprint for the Third Plenum of the 18th Communist Party Congress, which is due in about October, according to a source with close ties to several members of the Politburo Standing Committee.

If executed as intended, the new reform program would go some way to answering doubts about whether China can continue underwriting the Australian economy, including huge gas and other resource investment plans over the next decade. Some hedge fund managers say China's has reached a "zugzwang" moment, referring to the predicament when a chess player must make a move but prefers to pass.

"In China policy is made when the pain of inaction is higher than the pain of action, and we've reached that point," said David Hoffman, managing director of the Conference Board China Centre for Economics and Business.

7. 'Australia's housing bubble the largest on the planet' - So says a US hedge fund in this Sydney Morning Herald piece.

He points to a price to income multiple of 6.5 times in Australia. That's nothin' It's nearly 15 times income in Auckland. 

"We concluded that by almost any affordability metric, Australia had the largest housing bubble on the planet." The words of David Hurwitz of SC Fundamental, a large US-based hedge fund, neatly explain why he's shorting Commonwealth Bank. He's not alone, either. Jim Grant of Grant's Interest Rate Observer recently recommended shorting Westpac and Bank of Queensland.

Grant's colleague Evan Lorenz warns that, "Houses in the major Australian markets are priced at an average of 6.5 times median household income, compared to 3.1 times in the United States today and 4.6 times in the zany year of 2006. [Yet] In all my calls to Australia no one was willing to venture a bearish view on the Aussie housing market outside of a few suburbs in Queensland." Maybe he's calling the wrong people.

8. EU plans massive tariffs on Chinese solar panels - Reuters reports the EU has had enough of China's massively subsidised solar panel makers dumping excess stock in their market and may impose tariffs of 30% or more.

We've had lots of warnings before about Smoot-Hawley type tariffs being imposed as they were soon after the 1929 crash. It hasn't happened.

Yet.

Here's Reuters with the latest EU moves. See #3 above to get a sense of the pressures involved.

Trade Commissioner Karel De Gucht is expected to tell his fellow EU commissioners on Wednesday that Brussels should levy the tariffs to guard against Chinese production that quadrupled between 2009 and 2011 to more than the entire global demand.

EU producers say Chinese companies have captured more than 80 percent of the European market from almost zero a few years ago, prompting the European Commission to act against what it terms dumping. Europe accounted for about half of the global solar market last year, which was worth $77 billion, according to research firm IHS.

9. A sign of the time - Bloomberg reports with this nifty chart below that Swiss watch exports to China have slumped after austerity and anti-corruption edicts were issued by the new leadership of Xi Jingping and Li Keiqiang. Swiss watches were the 'gift' of choice to officials, it seems.

One, known as 'Brother Watch', had 12 luxury watches. Greedy bugger. 

Hermes International (RMS) SCA reported a drop in first-quarter watch sales due to a slowdown in China, while LVMH Moet Hennessy Louis Vuitton SA (MC), the world’s largest maker of luxury goods, said Chinese retailers have been buying fewer watches than expected. Communist Party official Yang Dacai was fired last year after photos posted online showed him wearing 11 luxury watches at different times, earning him the nickname “Brother Watch,” according to Xinhua News Agency.

“The corruption crackdown campaign is having a big effect on luxury watch sales,” said James Roy, senior analyst with China Market Research Group in Shanghai. “High-end watches are very common gifts and they are items that are quite conspicuous and associated as a sign of corruption.”

10. Totally Jon Stewart and Asif Mandvi scaring young Americans witless with the spectre of student debt and joblessness.

"Student loans are like herpes with compounding interest."

 

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Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.

37 Comments

 

Peak collateral – a strange attraction  

 

people really want is assets that are both high yielding and safe enough to pledge as collateral. And where there is a desire the market will provide. And what it provides, seen from the outside, is a bubble. A bubble of unreasoning and unreasonable exuberant make-believethat something that is risky is also safe.

 

http://www.golemxiv.co.uk/2013/05/peak-collateral-a-stange-attraction/

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Andrewj, the authorities are on the glaring collateral shortage

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I have used the term cannibilise to mean something very similar, the term is used in the posts further down.

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#7 If you truly believe  Auckland's multiple is currently 15x   Bernard, you are a moron.

(I think it would be inappropriate to delete this comment as I am stating a sincerely held  view which is pertinant and relevant. Also easily backed up simply by searching BH articles on this site.)

 My 10 year old grandson demonstrates a better grasp of housing affordability than you. 

Stop commenting about things you don't understand. There are people out there who bought into your hysteria back in '08 and '09, who sold up and now have no chance of buying back into the neighourhoods they lived in. You are to property punditry what Aaron Gilmore is to gentility.

Have some compassion man, stop before you do any more harm.

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How about we politely  ask BH for a calc?

I'd love to see it, because my jaw dropped...

This suggests a lot lower,

http://www.interest.co.nz/property/house-price-income-multiples

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North Shore City 225800 $712,763 $88,751 9.09 Wellington City 200100 $514,931 $96,049 5.36

Interesting that the calc looks like it includes a WFF component, so really the multiplier is worse!

regards

 

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Vera Fayed

Many thanks for your comments. Happy to debate things and issues. Please avoid the personal insults. It's no fun and doesn't strengthen your argument. 

Auckland City prices currently about NZ$700 k. Auckland individual income (not household) about NZ$48k. Hence 15 times multiple.

You are right that the house price median  to household income multiple is lower at around 7 for metropolitan Auckland. That's double what it was a decade ago. Here's our table. http://www.interest.co.nz/property/house-price-income-multiples

 

Also, if you're looking for more info on housing affordability in NZ vs other markets widely seen as bubbles, have a look at this neat tool from the Economist. Compare NZ with US, Spain, Ireland and Australia for price to income and price to rents.

http://www.economist.com/blogs/dailychart/2011/11/global-house-prices

cheers

Bernard

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BH oh come on your own comment  isnt doing an apples with apples though.

From your own page,

"the United Nations Framework and it is defined as the ratio between median house price and median annual household income, otherwise known as the median multiple. The World Bank also says this ratio is "possibly the most important summary measure of housing market performance, indicating not only the degree to which housing is affordable by the population, but also the presence of market distortions"."

So by your own comments you are not doing an apples with apples comparison as 15 is on one income. When we should be 1+1/2...

$700K is interesting, looking at Wellington metro $400k and a household income of $86k = 4.6, assume same wage for Auckland but 700k = 8.1. If we say that Aucklander is on $80k then the multiplie is 8.75. 

and the property gamblers think this will just keep going up and up and up?

Big daddy seems to think doubling, so $1.4million in real terms? that is a 17.5 multiplier, no country has ever recorded that let alone sustained it?

Cant see it here.

The property gamblers then say that multiplier is rubbish.....LOL....oh dear.

regards

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Vera, one of the victims of Bernard's 'hysteria" - your word - about property prices was in fact Bernard himself.

He had so convinced himself that house prices would not rise... were falling... that he sold his house last year.

Before the great price correction in the last eight months or so.

Bernard now realises he sold way too cheap and it's cost him a lot of money, hence the more-than-ever bitter tone to his comments about the housing market and related topics.

It has always seemed strange to me that market commentators are allowed to ramble on about market conditions and make all sorts of economic projections without ever having to conform to a relevent set of rules. This site covers itself by saying "it is not financial advice for the purposes of the Financial Advisors Act". So what kind of financial advice is it?

Bernard has his followers, no doubt about that. Any of those followers who believed him on house prices are tens of thousands of dollars in the hole. It has been a disaster for them.

Perhaps some journalist on this site should review Bernard's projections and see how they stack up today. Now that would make a good piece of 'investigative journalism' :)

 

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#8 - Even the rate of Chinese supply, is globally inadequate. Too little, too late.

 

Yet rather that grabbing the opportunity with both hands, they'll attempt to restrict. Old guard, out of time. We need new leaders, across the global board. The oldies are rapidly becoming irrelevant, via being blindsided. No idea, eh.

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Dont usually agree with PDK but he is right this time. If we send low cost or free food to Africa somewhere we call it foriegn aid. If the Western world has a problem with carbon emissions and the Chinese want to supply cheap photovoltaics we call it dumping.

If they can do for electricity costs what they have done for the cost of just about everything else that has to be a good thing doesn't it?

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My thanks are conveyed to you via two Chinese solar panels, an American washing-machine motor, and a Kiwi pelton-rotor.             :)

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Well my hope is the chinese will have no where else to sell their panels so here in little NZ we'll get them dirt cheap and get a ROI < 5 years. 

regards

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Anybody who sends low cost or free food to hungry places and calls it foreign aid is simply wrong.  That's not aid; it's dependency-institutionalisatipn.

 

 

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Dont usually agree with PDK but he is right this time. If we send low cost or free food to Africa somewhere we call it foriegn aid. If the Western world has a problem with carbon emissions and the Chinese want to supply cheap photovoltaics we call it dumping.

If they can do for electricity costs what they have done for the cost of just about everything else that has to be a good thing doesn't it?

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Yes....but I think time and time again we see "govns" deciding what is and isnt good for us....So here we see big manufacturers with clout who have bought votes ensuring their monopoly is maintained.   Yet the small one man bands who'd install much of these and prospective consumers get shafted....

regards

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With the exception (maybe) of the car price piece, I see all these articles as related. It looks to me of the powerful, wealthy elite moving to protect their own interests; especially their money and how to get more without remebering the lessons of history. Many sycophants support them.

Last year I watched Mark Sainsbury ask someone from the NZBR if CEOs were worht their exorbitant salaries. To which he said yes, definitely. But when asked about workers the answer was no, they haven't increased their productivity, so haven't earned it.

But I thought it was the CEOs job to create the environment where workers could increase their productivity, and to lead them into it. If they couldn't achieve this, then how can they have earned their salary? The wealthy, powerful elite protecting themselves at the expense of the masses again. Doctors do it by holding the population's health to ransom, getting paid salaries at a rate well out of step from their communities (at a regional DHB the starting wage for a junior doctor straight out of medical school is $80K). Lawyers do, and worst of all politicians lead the way!

How do we stop the rot?

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Murray - productivity gains have to follow a track of diminishing returns.

 

Take a nail-gun. From hammer to gun was a quantum leap. But unless the builder dons roller-skates, quick-fires on the pass, or some such, there is only refinement of the concept. The big gain is gone.

 

In that light, we are seeing the biggest soak upwards of wealth, since, well, actually there was only a brief hiatus when there wasn't; post WW2 in the easy-energy, scope-for-major-discovery period.

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I used glue :-P

 

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I agree to some degree with your sentiment murray86 but would make the following observations;

 

Without a moral imperative it is the nature of the human heart to protect it's interests and this is not a feature of the powerful, rich or 'elite' (whatever elite may mean).  Anyone can be selfish.

 

A CEO is trying to increase productivity for sure but you might have defined the reason for a salary a bit narrow there.

 

I am rarely comfortable about demonising any as a group, especially with non defined words like 'eilte'.  Does the presence of material success mean you must be ipso facto selfish?  Case in point are thes young doctors going into a health system that was created before they were born with wages preset by someone other then them.

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agreed, but history also teaches us that if the ordinary people do not get a share of the wealth, then sooner or later they rise against those who hold it all. the longer it takes for that to happen, the uglier it is when it does.

Every body wants a piece of the pie, and there are a lot of high paying jobs in areas that do not produce anything real, and therefore any real wealth (try banks). A CEO would then look to increase his company's product line, increase productivity through automation or othere areas that create an income. Jim Collins book "Good to Great" talks a lot about what makes good companies, it is not just productivity but real leadership. Many of these CEO's do not lift their company with them, but effectivel bleed them somwhat in the name of appearances.

The current economic model espoused by academics espouses ever growing profits and accounting practices have identified all kinds of ways to find profit when there isn't, and to limit liability when there is. the reality is that any buisness only needs to break even plus a little. the threat of a take over only exists if the ownership is spread across a pool of shareholders. We need to change the model we use, and perhaps protect our own a little better. 

 

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Totally agree. My further question is as to how they store this 'wealth''? It used to be hoarded gold, or ownership-in-perpetuity of peasant-tithe land. Now it's electronic '1's and '0's. Will they actually 'have it', when the envy breaks? Or will the electronics crash? I see the Dow as a flight-to-safety on that continuum.

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"flight to safety" as in putting money into the DOW?  if so I dont agree, I think its a flight to make any money possible, greed and fear of being left behind in aponzi scheme....no way do I consider the DOW a safe place.

regards

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steven - quite right. I meant that they are looking for safety, and there aren'y enough safe places - hence the Dow. That weasel has to pop, and I suspect it isn't the only one.

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Are there any safe places?

Everything strikes me as valued excessively even before you consider the implications of peak oil/minerals and BBs retiring. 

regards

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Which of the Dow components do you consider at risk of losing value steven? Most of them look pretty solid to me.

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The underlying financial credentials may prove to be exceptional upon inspection, nonetheless the present value of discounted future cash distributions to the owners maybe subject to regulatory authority distortion and impressions lacking substance.

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Vera we obviously have a massive world view difference. That's fine, just think on "it isnt over until the fat lady sings".  If you want to stay in the markets be my guest, Ive exited and Im happy I did so (at least where I can, my pension schemes are locked in).

The great thing about shares is the losses involve your capital only and not bank loans/mortgages whose losses get passed onto the tax payer ie me (all else being equal).

"which" is all of them, they are all valued on a "business as normal" ,  infinite growth and cheap fossil fuels. On top of that their prices are pumped up by cheap Fed money looking for any return, hence why I have said its a dead cat bounce.

So yeah enjoy making money, having fun is the important thing.

regards

 

 

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History also shows revolutions rarely deliver justice.

 

One thing to remember about the pie is it can be made larger.

 

I would be careful using phrases like "our own" as you risk becoming the very same selfish thing you criticised the rich for (looking out for their own interests).  In the end we are all in the same boat.

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No, the pie cant be made any larger than it is today, it only grows if fossil fuel output can also grow, that is no longer the case, so the pie will shrink. Not only that of course what pie is left has a big % commited in the form of debt....ergo taht has to be defaulted on.

NB We have had 30 years of that "the pie can be made larger" cw*p and you only have to look at the ever growing inequality data to realise anyone who believed that was/is a fool.

Yes we are all indeed on the same titanic, on that we can agree. The Q is how long will masses in the stowage class be kept below by the guns.   Ive said it before IMHO the Pollies etc are at risk from a neck stretching party (a revolution)...why do you think the Greek parliment wanted thier escape tunnel checked out?  Or the "unjustified" riots in London?  and this event hasnt even started yet.

regards

 

 

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Material wealth has been increasing on a previously unknown scale since the 1500's and encompasses the age of discovery, the age of enlightenment and the commercial, scientific and industrial revolutions.  To such an extent there are theories on it:

https://en.wikipedia.org/wiki/Great_Divergence

 

This increase starts well before the the current oil revolution started some time around the 1850's thus pointing out the historical fact that a pie did actually grow without oil.

 

Also worth noting, the mere presence of oil did not create any growth in wealth in countries like China who recorded no net economic growth between 1500 and 1950 thus disproving simplistic correlations.

 

Debt by definition is someone elses piece of the pie (asset).  The fact people loan pie to one another doesn't actually have anything to do with the size of the pie as a whole.  Deciding whether borrowing and lending pie is a good thing or not probably depends on where you sit as borrower or lender.

 

Equally, although a significant issue in its own right, inequality of pie doesn't have anything to do with the total size of pie either.

 

My wish would be no revolutions because their historical track record of delivering equity, peace or justice is very poor.

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Well writtten Ralph And people's wealth improved as legislation was changed. As the people were granted freedoms from the oppression they had been under, they prospered.  It started with Magna Carta and then moved slowly forward bit by bit. Habeas Corpus and then the Bill of Right 1689 which followed the Glorious Revolution.

 

The Chinese have had this opportunity and the people have moved ahead in leaps and bounds.

 

Imagine what amazing things would happen to the people of the world if the Governments and Bureaucrates removed a vast percentage of their dead weight out of the system. Countries like NZ have been expanding legislation, regulation, Compliance etc which smothers business and people and creates inequality and a shrinking pie for many.

Those who see themselves getting a smaller piece of the pie then rely on the promises and handouts of the Politicians. Robbing Peter to pay Paul doesn't work. Looking after certain causes either end of the spectrum with Government favours and handouts is what creates smaller pieces of pie for some and larger chunks for others.

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Spoken like a true communist comrade. Long live the glorious bureaucracy which grant us our freedoms.

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You live in la la land IMHO.

regards

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To start with I did say fossil fuels and not oil.  The 1800s and indeed before saw the increasing use of coal, which if we take the UK as an example peaked in 1913 and was effectively used up by the 1980s. Ergo when you say 1850s, it does agree with my theory.

Some good indicators are house prices and population increases with energy use.

Sure there were increases and improvements, sail for instance just got better and better from the 1400s. Things like this improve energy efficiecny on significant scale...which means more excess energy to grow.

Im not sure where yu get to with china, it was fighting a long and bitter civil war and the japanese until Mao won. Just what industry did china have? eg much of their weapons were imported. Plus of course they were exploited by various 1st world countries. lots of other countries show similar patterns...

pie and debt, bit of a red herring,  yes I can live with that defination, except productive borrowing is what is meant to happen, ie you borrow a slice of the pie with the understanding you will secure a larger piece as the pie grows, thus paying back the debt and making a profit.  The pie only grows however when there is more fossil fuel energy to allow it. In the real world where real goodbut s are made anyway, financial deals produce more 1s and 0s no real goods. hence things like GDP and productivity are a con IMHO they contain to many make believe items that distort the figures.

Equality-inequality and pie size, yes and no because a shrinking pie hits those unable to maintain their % / cut harder.

Revolutions, I agree...they happen really because enough ppl see themselves as severly disadvantaged enough that he govn is removed.  If you look at say the nazis that was via the ballot box....so a legal and fair process (im sure there was the odd beating and murder involved but that % couldnt have swung power I suggest) 

regards

 

 

 

 

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Agree

Guess America is a great example of a country at risk of revolution, a lot of wealth inequality, and a lot of people with a lot of guns

Mao said fish must have a sea to swim in....and that power speaks from the barrel of a gun

Odd in this world that the people who do the hardest most unpleasant work get paid the least,  while those who do very little get paid the most.

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The current economic model I would say was espoused by pollies, greedies and a few quacky economists tacked on and not most academics...otherwise yes I agree.  Though the model we use in the future wil indeed be nothing like what we have now...

regards

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On the theme of growing inequality, I also am somewhat optimistic for both the world, and certainly New Zealand, even if the evidence of the last few years has been negative, with countries like Greece, Spain and other Southern European coutnries showing the real human side of the effects of extreme inequality.

Reasons for the optimism:

1) Globalisation, technology and automation has actually incrased the world's capacity to make things and provide services. Even if PDK is right that we have now hit the maximum capacity of production (and I'm not sure he is), that is still a lot of production. As I believe Henry Ford noted, in the end even a very selfish capitalist needs customers to be able to buy his products and services; and needs them in some quantity. There is a limit to how much the very wealthy can consume.

2) The same global/technology effects may well reduce the peak incomes for many even at the top of the income stream; people such as bankers, lawyers and doctors (most of whom I do not begrudge a pretty good income) will struggle to command the premium they have in the recent past.  Supply and demand will still force use of assets (if not the ownership) down the pyramid. 

3) The returns on wealth, or capital, could be sticky in some asset classes at least(and is the biggest risk to remaining in poverty). Owning ones and zeros in financial assets may not give the return that it has in the past (and indeed is giving near zero returns around the world over the last few years, and for the foreseeable future, as many governments print their way around the problem). Nevertheless it would be reckless at a household or national level to leverage up with too much debt; (with the one caveat that at a national level, the bigger risk for sovereign governments is in debts of another currency). Owning scarce irreplaceable assets, especially productive ones, may be the more difficult inequality nut to crack, as they will be able to command high rents for the foreseeable future. (and is one reason why I don't like selling power companies and replacing them with ones and zeros on a computer- especially for a sovereign government who can do that at will without selling the asset, but I digress). 

4) Modern democracy will unlikely have 51% of people voting for themselves to move into absolute poverty (although I accept that countries like India have not given democracy a good score in this regard to date).

5) New Zealand then has pretty good infrastructure, good rule of law, and a pretty good political consensus on giving everyone some sort of fair go. I accept this has been stretched the last 10-20 years (following world trends); but will likely follow the world back to a more equitable split of the benefits of society than has been evident recently. New Zealand could have much better policies for increasing national wealth (slightly different to income) over time, but I don't wish to be too negative. 

 
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