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Top 10 at 10: Bernanke grilled over US$9 bln lent to NZ; Japan’s demographic time bomb; Britain’s confidence trick; Dilbert
July 22nd, 2009Here’s my Top 10 links from around the Internet at 10 am. (My apologies for lateness Wally. Had to take my daughter to the doctor) I welcome your additions in the comments below or please send any links for tomorrow to bernard.hickey@interest.co.nz I hope I’m not an idiot with an anger management issue.
1. No one can say I’m unbalanced. Here is an attack on Nassim ‘Black Swan’ Taleb, who I’ve featured several times on Top 10 at 10. The attack from Scott Locklin is both high falutin and down and dirty at the same time. HT Felix Salmon
Taleb thinks all of quantitative finance is nonsense and we should do away with quants. I am guessing the former’s delusions had something to do with drinking the same Berkeley tapwater in the 1960s which made everyone else believe in crazy things, but Taleb was a trader, and it’s a common prejudice of traders to dislike quants for cutting into their P/L.
2. Here is some grand theatre in a CSpan video on Youtube from Ben Bernanke’s Congressional hearing overnight where Congressman Alan Grayson grills Bernanke over currency swaps with various central banks, including “New Zealand, who got US$9 billion or US$3,000 per person” (2mins 31). It’s a fascinating watch and all part of the growing momentum to audit the Fed. This will go viral.
3. Here’s an excellent piece from the Washington Post on how close the Federal Reserve Bank of New York is to Wall Street. It’s run by Goldman ‘Vampire Squid’ Sachs’ chief economist William C. Dudley. HT ZeroHedge.
“The New York Fed sticks out as being not just very, very close to Wall Street, but to the most powerful people on Wall Street,” said Simon Johnson, an economist at MIT. “I worry that they pay too much deference to the expertise and presumed wisdom of a sector that screwed up massively.”
Even some former insiders at the Fed say the bank does not pay enough attention to the fundamental flaws in the country’s financial system or to the risks associated with bailing out financial firms — for instance, the chance that banks will be encouraged to take more unwise gambles. These experts worry that the New York Fed has adopted the mindset of a trading floor: well attuned to ripples in financial markets but not to long-term trends and dangers.
Last month, for instance, Wall Street bond traders wanted the central bank to ramp up its purchase of Treasury bonds, which would help the traders by driving up prices. But Fed officials in Washington and around the country concluded that such a move would be counterproductive in the longer run, in contrast to some New York Fed staffers, whose views more closely mirrored those on Wall Street.
4. Jeremy Warner at the Daily Telegraph writes that the banking system won’t be emerging from intensive care any time soon.
An extreme shortfall, or “funding gap”, has opened up which taxpayers have had to fill. These actions have prevented a full-scale collapse, but the system of private credit creation remains badly injured with no obvious way of repairing the damage.
As the FSA’s director of banking, Tom Huertas, has pointed out, the totality of this public support is already close to £1.3 trillion, or virtually as big as Britain’s entire annual GDP. A bewildering alphabet soup of schemes has been put in place to counter the contraction in private provision of credit.
Yet mind-boggling though these numbers already look, they still understate the true magnitude of the problem. In promising that nobody will lose a penny as a result of the banking crisis, the Chancellor has in effect underwritten the liabilities of the entire UK banking system, amounting to a multiple of several times the size of GDP. The balance sheet of Royal Bank of Scotland alone is worth around 1.5 times GDP. Even the combined might of the British taxpayers would be incapable of honouring this promise, which therefore amounts to no more than a confidence trick. It’s a bluff which the Government had better hope the markets never call.
5. There’s an excellent series of videos being broadcast on PBS in the United States of a film by economist and historian Niall Ferguson (below) Here are all the episodes online. PBS is doing fantastic work on the crisis and, unlike most other broadcasters, is putting it all online for free. Good on them.
6. Another very serious US economist is predicting a double dip recession for the world’s biggest economy. Barry Ritholz at The Big Picture points out that former NBER economist Martin Feldstein is predicting a double dip recession.
“The U.S. recession may not be coming to an end and there is a risk the economy may experience a “double-dip” contraction, said Martin Feldstein, a professor of economics at Harvard University.
The economy could “flatten out” or “even be positive” in the third quarter, and then it’s likely to contract again in the last three months of the year as the effects of the federal stimulus program wear off and companies finish rebuilding inventories, he said.
“There isn’t going to be enough to sustain a really solid recovery,” he said, even though recent data has provided some “good news” on the economy. . . “
7. Here’s Daniel Gross at Newsweek giving a personal view on why the Japanese economy is not recovering. Japan has a massive demographic problem with an ageing population, a low birthrate and virtually no immigration.
Chalk it up to age, or to culture, but Japan strikes me as strangely passive about the huge changes it is facing. I heard plenty of bromides about the need for new policies toward both immigration and work-family issues, but no real policies. “The ongoing issues of the lower birthrate and the aging society have been going with such speed that the national design of how to respond to that has not caught up yet,” said Yuriko Koike, a television reporter turned politician (Japan’s first female defense minister) and one of the most prominent women in public life.
As befits a nation riven by geological faults, the focus seems to be on planning to use technology to manage the impact of unstoppable events rather than averting them. In Toyota City, where robots do 90 percent of the welding work on Priuses at the Tsutsumi plant, I asked a city official how demographic changes would affect the delivery of health care. He responded, only partially in jest: “Maybe the robots will take care of us.”
8. Here’s Ben Bernanke’s Op-Ed in the Wall St Journal on his exit strategy, again for balance.
My colleagues and I believe that accommodative policies will likely be warranted for an extended period. At some point, however, as economic recovery takes hold, we will need to tighten monetary policy to prevent the emergence of an inflation problem down the road. The Federal Open Market Committee, which is responsible for setting U.S. monetary policy, has devoted considerable time to issues relating to an exit strategy. We are confident we have the necessary tools to withdraw policy accommodation, when that becomes appropriate, in a smooth and timely manner.
Overall, the Federal Reserve has many effective tools to tighten monetary policy when the economic outlook requires us to do so. As my colleagues and I have stated, however, economic conditions are not likely to warrant tighter monetary policy for an extended period. We will calibrate the timing and pace of any future tightening, together with the mix of tools to best foster our dual objectives of maximum employment and price stability.
9. The US Treasury has unveiled details of a plan to overhaul regulation of ratings agencies, the WSJ reported. This came as Standard and Poor’s upgraded its rating on some mortgage bonds to AAA less than a week after downgrading them to BBB-.
Separately, the Treasury Department unveiled details of the Obama administration plan to overhaul regulation of credit-ratings firms by requiring increased disclosure and stronger oversight.
The proposed legislation, sent to Congress on Tuesday, would ban ratings firms from providing consulting services to companies they rate and require the ratings firms to disclose fees that issuers pay to obtain ratings. Ratings reports would have to include a history of issuers’ fee payments dating back two years.
It also calls for disclosure of preliminary ratings sought by firms engaging in “ratings shopping,” in which companies seek a range of preliminary ratings, paying for only the highest.
10. This is a fascinating little comment from the WSJ from Singapore, which has quietly decided not to appoint former BHP boss Chip Goodyear to run its monster Sovereign Wealth Fund Temasek. The previous CEO was the wife of the Prime Minister and therefore the daughter in law of Lee Kuan Yew, Singapore’s founding father (and still very much on the scene.) I watch this a bit because I worked in Singapore from 2003 to 2004 for Reuters. A strange place. Outwardly western and democratic, and yet not…
Under Singapore law, Temasek isn’t obligated to release any financial data at all. But if Ms. Ho wants to send a message to taxpayers that Temasek is still on a reform path, she’ll assure them that Mr. Goodyear’s appointment wasn’t merely an aberration from opacity as usual.
Tags: Ben Bernanke, Chip Goodyear, Lee Kuan Yew, Martin Feldstein, Nassim Taleb, Niall Ferguson, Top 10 at 10
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July 22nd, 2009 at 1:25 pm
No worries. Cheers Bernard.
July 22nd, 2009 at 1:25 pm
Ha. There’s someone asleep in the background of Bernanke in the video
July 22nd, 2009 at 1:40 pm
“The Federal Open Market Committee, which is responsible for setting U.S. monetary policy, has devoted considerable time to issues relating to an exit strategy” I’m sure they have been “devoting considerable time” to it. Maybe they will decide to change the name to ‘The Great Escape” and then Hollywood could employ all the unemployed to co star in a remake in which dear old Arnie would have to be left out!
July 22nd, 2009 at 1:45 pm
That’s interesting, does the govt pay the ratings agencies? If so, how much did S&P get, Moodys and wait for it…..Fitch! ???
July 22nd, 2009 at 1:58 pm
So Japan is being “strangely passive about the massive demographic change that is occuring” The whole developed world is being strangely passive, it reminds me of the titanic movie with the musicians still playing and everbody eating and drinking not wanting to accept the situation then start panicking when there weren’t enough life boats.
July 22nd, 2009 at 2:12 pm
“New Zealand, who got US$9 billion or US$3,000 per person”
Can anyone discuss the terms of these loans, how much are we paying in interest and when do they want it back? or can we roll it over? How much is that going to cost?
I think it is a great lark for the US, “printed money” with a rate of 0-25%, lent to NZ with a OCR of 2.5%.
$US9b is alot of money for us.
July 22nd, 2009 at 2:25 pm
Now where did the US$9ooooooooo go to?
July 22nd, 2009 at 2:57 pm
I am assuming the Fed swap is the one mentioned here,
http://www.rbnz.govt.nz/news/2008/3473796.html
it was due to expire on 30 April 09, but I suspect it was renewed.
It doesn’t look like it has been fully used, But around 7B NZ was drawn from somewhere between Dec and Jan.
http://www.rbnz.govt.nz/statistics/rbnz/f5/data.html
July 22nd, 2009 at 3:03 pm
Bernard,
It’s good to see a Dad putting his priorities in the right place. Good on you. The news can wait
That is one hell of a good video of Ben Bernanke.
I’m still waiting for my US$3,000 though
July 22nd, 2009 at 3:04 pm
Thats easy Wally Check out the rail deal of the year Once known as Toll now renamed KIWIRAIL.
July 22nd, 2009 at 3:15 pm
Kieran: The other elephant is peak oil, the next is ballooning debt…..but hell whats one more ice berg…..The US and UK indeed Europe also has this aging problem….The Cullen fund was just abut unque in trying to soften it, yet National just side stepped it leaving the pain for later….
And thats the issue, all the Pollies are afraid that dishing out pain to voters will cost them their cosy jobs, so they are all conducting frantically while the deck continues to dip steeper and steeper…
Stevel: but we have to pay it back.
July 22nd, 2009 at 3:35 pm
Im taking a shine to that Alan Grayson….whats really amusing is time and time again he appears to be one switched on cookie and he seems to easily make the ppl before him into canon fodder….The head of the Fed should have info at his finger tips, instead he looks like a bumbling idiot, especially as this is par for the course when sitting in front of this guy.
July 22nd, 2009 at 3:47 pm
PBS is an excellent resource. Shame our public channel does not learn from them and the BBC. No need for pseudo celebrities, just provide great content.
The US public radio http://www.npr.org is also superb. Has great music shows, which they stream for free. The americans do some things very well.
July 22nd, 2009 at 3:55 pm
I highly doubt Ben Bernake will be up again for another term at the fed, he’s becoming a political liabilty for the Obama camp.
The Washington rummor mill is pegging Larry Summers for Fed Chairman.
July 22nd, 2009 at 4:06 pm
I’ve just collected some info on this, including the actual report for anyone with time on their hands
http://neuralnetwriter.cylo42.com/node/1433
Unfortunately that’s not me right now.
July 22nd, 2009 at 5:11 pm
A nation in debt is a nation enslaved. Does anyone know how we can get to see the terms and conditions attached to these and IMF loans generally. I searched the IMF web site but did not find it.
Forcing us to put Folic Acid in our bread is perhaps just a start. Are they going to push GMO foods on us, saturate our water further with chemicals and force vaccinate us along with the many other extreme policies now being put forward by the Globalist New World Order, thats coming out into the open.
July 22nd, 2009 at 5:15 pm
Don WILL be happy, just got his fingers back into the gravy boat.
July 22nd, 2009 at 5:27 pm
Good post Bernard creepy little man that Mr Bernanke he said that the federal reserve act 1914 was what gave the Fed the power to do what it liked in as much words,he was telling the truth the Fed is a law unto itself its a private run for profit bank not owned by Americans that is a Fact they dont have to be audited .
Baz
July 22nd, 2009 at 5:31 pm
‘The time has come,’ the Wally said,’To talk of many things: especially about what Beijing might be thinking of buying in the way of equities. Seems they have lost the taste for US IOU toilet paper. I wonder what they want?
July 22nd, 2009 at 6:14 pm
Steve – you might feel shortchanged when your cheque arrives from the Fed.
According to my maths USD9,000,000,000 divided by 4.3 million is only USD 2,093.
We really must stop telling the world that “We do pretty well for a country of only 3 million people”. That’s so 1973.
July 22nd, 2009 at 6:23 pm
A bit embarrassing for NZ to be singled out. This probably doesn’t help our case when wanting to acquire more foreign debt at reasonable costs…
July 22nd, 2009 at 7:17 pm
marky mark,
I’m sure swine flu will improve those numbers !!!!
July 22nd, 2009 at 8:15 pm
What’s the problem guys ?
Fitch ( Yes the ones that rated toxic mortgages AAA ) requires us to halve our current account to GDP ratio inside two years.
Let’s embark on a major prison building program, fix all the leaky homes and insulate the rest. GDP expands – Ratio down – problem solved ! Yeh Right !
Then the rating agencies can go back to sleep.
Maybe if we looked at GNI or Interest to Exports or GNI / Capita or Gross Debt / GDP we might actually get a wake up call to reality that is staring us down the barrel.
Catch Australia’s incomes – what a laugh.
They all assume Australia stays where it is and waits while we catch up.
The probability of us equalling Australia’s per capita incomes in 25 or 30 or even 50 years is precisely zero as in zip.
Still nice job for the ex Governor.
Gathers a team of worthies – prepares a report – Government ” studies ” – all too hard -
back to dancing in the coconut isles and the Hillary Papers and the things that really matter.
Life carries on – we award ourselves ever greater entitlements with no thought as to how we are going to pay for them and continue on our merry borrow and hope ways.
One day the foreign suckers will wake up and want a higher interest rate and a lower exchange rate.
Then we can all go to Australia leaving our oldies to enjoy their sunset years with no one to pay the piper.
Still maybe Madoff had it right.
Live like a king and hope judgement day never arrives before you depart the planet.
The best thing about a holiday is no one can take it off you.
New Zealanders are just Madoff’s on a lifestyle block.
July 22nd, 2009 at 9:11 pm
John B… it’s not about benchmarking our income viz a viz, the chap next door. Its about being comfortable about where we are at, and working with what we have…
”In your concesness you must look…In yourself you must reside” [dude wheres my car].
July 22nd, 2009 at 9:35 pm
some interesting charts….The real misery index….
http://www.huffingtonpost.com/2009/07/20/how-the-recession-affects_n_241557.html
July 22nd, 2009 at 9:44 pm
Mr Benanke has the look of a man who has been watching too many Balls in the Air for too long.
July 23rd, 2009 at 6:54 am
Mouse – The ability to live happily minus the neighbors ox is an admirable trait.
The problem here is we are still borrowing heavily to maintain our existing life style,
and that cannot continue as it will make us forever poorer.
Eventually foreign lenders will say – no more and that’s when it hits the fan.
July 23rd, 2009 at 7:54 am
John B – and hitting the fan, I’d say the process is well underway. It’s an absolutely fascinating to point in history to be watching… I guess all we can really do at the moment is try to observe from a safe distance.
July 23rd, 2009 at 8:07 am
@mouse: Or, we can do as Bernard did here, http://www.interest.co.nz/ratesblog/index.php/2009/07/22/housing-report-2-year-fixed-mortgage-rates-stable-after-long-drop/ and try to warn people to watch their debt.
I think we should also really try and get our imports lower, as that will reduce our foreign debt. $NZ debt will float with the tide, but we’ll get swamped by foreign debt if our dollar sinks.
July 23rd, 2009 at 4:32 pm
Very interesting documentary posted on youtube called the Obama deception.
http://www.youtube.com/watch?v=eAaQNACwaLw
Gives a good breakdown on the Fed and economic issues. Starting to look like it may be true after all…. Beam me up Scottie !