Bernard's Top 10: ; Australia's big money laundering through real estate problem; Inside America's plutocracy; All-cash buyers in America triple in a decade; Why rates are falling; Clarke and Dawe

Here's my Top 10 items from around the Internet over the last week or so. 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 #1. The same issues apply here.

1. The money laundering issue - ABC's Four Corners programme ran an excellent piece this week on money laundering in Australian real estate.

It's yet more evidence that New Zealand needs to take its responsibilities more seriously and extend the new Anti-Money Laundering rules from banks and fund managers to solicitors and real estate agents.

The former head of Australia's anti-money laundering agency has called for tough new rules to force solicitors and real estate agents to report suspicious transactions and prevent Australia from becoming a safe haven for foreign corrupt funds.

Despite highly credible warnings that large volumes of illicit money leaving China were being laundered in Australia, a Four Corners investigation found no Australian agency was charged with identifying the true source of foreign funds being invested into the economy.

3. 'Large amounts laundered' - Even the officials are worried.

In April, the Financial Action Task Force (FATF) — a global association of anti-money-laundering regulators — criticised Australia for failing to force real estate agents, solicitors and accountants to scrutinise their clients and the source of their money.

This is a provision that has long been in place in other major economies.

"Large amounts are suspected to be laundered out of China into the Australian real estate market," the FATF report said.

"China and other countries within the Asia-Pacific region were also seen as likely sources of corruption proceeds that are laundered in Australia."

FATF also stated it was "left with the impression that law enforcement efforts to pursue the laundering of foreign proceeds might be given a higher priority if there was an explicit national policy to address this risk".

3. Is this the end? - The surprise mortgage rate increase yesterday by Westpac in Australia has got people wondering whether Australia's housing boom is over. Australia's banking regulator has forced banks to raise more capital to make them safer if Australia's property bubble bursts, so they're increasing their mortgage rates to adjust for their higher capital costs and to discourage lending growth that would require lots more capital. Fair enough.

Growing signs that new measures to clamp down on capital flows out of China are also dampening enthusiasm in Australia. Earlier this week Macquarie Bank predicted a 7.5% fall in Australian house prices from March next year.

Here's Elizabeth Knight at the SMH:

History will show that if there was a day that marked the start of the end of Australia's residential property boom it will be today.

Regulators and legislators that have spent the past two years worrying about an overheated property market should now be diverting attention to the fallout when the home market deflates.

The property market appears increasingly close to being caught in a pincer between a big increase in supply and the start of moves by banks to increase interest rates on home loans.

Westpac announced today it will be the first of the big banks to raise interest rates for owner-occupied home loans.

Over the past few months rates on some investment residential property loans have increased but the owner-occupied residential heartland has until now been shielded from an increase in variable rates.

It is a fair bet that in the Australian banking landscape where there is limited price-based competition between the major lenders, that others will follow.

4. America's plutocracy - America touts itself as the world's biggest and best democracy, yet voting rates are appalling and recent Supreme court rulings have unleashed walls of money into politics to buy (or at least steer) influence.

This New York TImes piece documenting how just 158 families have donated almost half the money raised in the current presidential campaign season gives an intense flavour of how America's political system works.

They are overwhelmingly white, rich, older and male, in a nation that is being remade by the young, by women, and by black and brown voters. Across a sprawling country, they reside in an archipelago of wealth, exclusive neighborhoods dotting a handful of cities and towns. And in an economy that has minted billionaires in a dizzying array of industries, most made their fortunes in just two: finance and energy.

Now they are deploying their vast wealth in the political arena, providing almost half of all the seed money raised to supportDemocratic and Republican presidential candidates. Just 158 families, along with companies they own or control, contributed $176 million in the first phase of the campaign, a New York Times investigation found. Not since before Watergate have so few people and businesses provided so much early money in a campaign, most of it through channels legalized by the Supreme Court’s Citizens United decision five years ago.

5. Even America is feeling the capital flows from China - Marketwatch reports that all-cash buyers from China of houses in America have tripled since 2005 and this group spent US$22 billion on homes there last year.

“Cash buyers across the board are playing a much bigger role in the housing market now than they were 10 years ago, and that is particularly true for Chinese Mandarin-speaking cash buyers, who are more likely to be foreign nationals,” said Daren Blomquist, vice president at RealtyTrac. “Foreign cash buyers have helped to accelerate U.S. home price appreciation over the past few years given that these buyers are often not as constrained by income as local, traditionally financed buyers,” he said.

Indeed, median home values in the U.S. have risen to $180,800, the highest level since mid-2008, and up 3.3% in the past year, and they’re projected to rise another 2.2% in 2016.

Chinese Mandarin-speaking buyers also increased as a share of overall buyers more than any other language group between 2005 and 2015, up more than 9%, according to RealtyTrac. Other languages spoken increasingly by buyers were Hindi and Arabic, the research firm said.

Overall, Chinese buyers spent $22 billion on U.S. housing in the 12 months through March 2014 — 72% more than a year earlier, according to the National Association of Realtors, buying mostly high-end, expensive homes with a median price of over $500,000.

6. The problems in China - They're not going away in a hurry and Bloomberg reports the next flash point could be the collapse of a big steel company.

This time it’s the steel industry’s turn, as investors wonder if a potential bond default by Sinosteel Co. is an omen of things to come amid slowing demand for the metal used in everything from cars to construction.

The state-owned steel trader, whose parent warned of financial stress last year, may have to honor 2 billion yuan ($315 million) ofprincipal next Tuesday when bondholders can exercise an option forcing the notes’ redemption two years before they mature. If that should happen, China Merchants Securities Co. thinks the firm will struggle to repay.

A default would be the first by a Chinese steel company in the local bond market, which has had five missed payments this year, according to China International Capital Corp. Premier Li Keqiang is allowing more defaults to weed out the weakest firms as he seeks to rebalance a slowing economy.

7. 'Don't worry because the real wage growth will come' -- Here's more from Morgan Stanley's Manoj Pradhan on his view that ageing populations will trigger labour shortages and push up real wages. 

Interestingly, he points to Japan to back his argument. Its economy slowed and wages stopped rising as its population aged, but he blames other factors happening at the same time that are unlikely to be repeated.

What does the future hold for the world’s ageing populations? When experts try to answer this question, they often look at Japan, a country whose demographic profile turned sharply older in the early 1990s. Growth fell, deflation set in and capital investment flatlined. Nominal interest rates stayed incredibly low for a long time.

That outcome, however, owed much to events outside Japan. At the precise moment that large numbers of Japanese people began retiring from the workforce, the rest of the world was awash with labour. People born in the 1970s were just entering the workforce. Hundreds of millions of workers in China and eastern Europe were integrated into the global economy. All of this allowed real wages to fall.

8. This time it's different -- Hmm. Pradhan reckons everyone else's ageing population will produce a different result to Japan's ageing population. Because. Wait for it. This time it's different. These are the four most dangerous words in the business of economics and markets, but here's the argument. I hope he's right.

This time round, demographic change is far more widespread. In Japan, inflation fell when the ageing population dropped out of the global labour force and was replaced by workers elsewhere. But when most of the world grows old at once, there are few places left to turn.

Healthcare is a telling case. People who live longer will require more of it. Meeting that demand will take workers — increasing the demand for labour and lifting real wages, precisely the opposite of what happened in Japan.

Real interest rates, which fell in Japan as the population grew older, are likely to rise in an ageing world. This is because of the balance between savings and investment. Demographics will lower both, but savings will fall by more.

Why? For one thing, higher wages will transfer money from the rich to the less well-off, who spend a higher proportion of their income and save correspondingly less. For another, the scarcity of workers will force companies to substitute capital for labour, increasing their investment rate. A third factor is housing. The elderly will resist moving out of their homes; a huge wave of construction will be needed to house the young and the millennials.

9. Why the growth and inflation isn't coming - Pimco, now shorn of Bill Gross, has a view on the stubbornly low and falling growth rates hitting the global economy at the moment. Essentially, Pimco says central banks were right to cut rates to zero. Our Reserve Bank hasn't bought the secular stagnation theory detailed below...yet.

The bolding is mine.

Despite low oil prices, waves of QE and rate reductions by many central banks, world GDP growth in 2015 is expected to come in at a pedestrian 3 per cent, even though one year ago, when little of the stimulus from oil, rates and QE was factored in, the consensus projection for growth was 3.6 per cent. The same is true for the 2016 outlook: a year ago the consensus for 2016 was for 3.8 per cent growth, but now has been marked down to 3.5 per cent. And if history is any guide, it may only be a matter of time before the incoming data for 2016 again disappoint the more optimistic consensus from the prior year.

So why isn’t growth accelerating? The simple answer is that falling oil prices, low interest rates and monetary accommodation are not random windfalls, but are instead responses to an excess of global supply relative to global aggregate demand.

The decline in expectation for future productivity growth is a major source of the “new mediocre” of sluggish global demand falling short of ample global supply. The connection is as follows. Decisions by households and firms to invest or consume today depend in part on expectations for future income or profit growth, which in turn will be tied to future productivity growth. If workers expect modest or no pay increase in the future and firms scale back their views of future profits, they cut back today on consumption and investment.

10. Totally Clarke and Dawe - Malcolm Turnbull is interviewed before his trip to New Zealand tomorrow...