Top 10 at 10: Chinese burn on credit tightens; Could the yuan fall, rather than rise?; Daily Show; Dilbert
5th Feb 10, 11:37am
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Here are my Top 10 links from around the Internet at 10am. I welcome your additions and comments below or please send suggestions for Thursday's Top 10 at 10 to bernard.hickey@interest.co.nz We like to breathe. I'm also loving the cartoons below on Obama choosing (not) to go to the moon.
1. Chinese burn - The Bank of China is applying the brakes to lending, increasing interest rates for property developers, Dow Jones reports. Just imagine in New Zealand if monetary policy was tightened in this way. A few phone calls from Alan Bollard and 'Bob's your uncle' - lending stops. There's something to be said for a dictatorship...
The move appears to be in response to the China Banking Regulatory Commission's call last week for lenders to remain vigilant to property-market fluctuations. The regulator has pledged to step up its supervision of property-related loans amid growing concern about the formation of asset bubbles. Bank of China told its credit officials at a meeting Monday that interest rates on new loans extended to real-estate developers should be raised from Feb. 1, and that "in principle" officials aren't allowed to offer a rate below benchmark interest rates, according to the person, who declined to be named. During the meeting, management also criticized some teams for lending too much in January, said the person, without elaborating.
2. Where the power lies - Chinese economists (who no doubt have been put up to by some government officials) are applying the pressure to America. Here's a piece in state-owned People's Daily Online talking about renewed worries that US dollar money printing to pay for US government deficit spending will devalue China's holdings of US$ denominated Treasuries... HT Gertraud via email.
He Maochun, director of the Center for Economic Diplomacy Studies at Tsinghua University, said the deficit would be financed by those holding U.S. dollar-denominated assets with the main channel to transfer the risks caused by the deficit being the issuance of U.S. treasury bonds. The U.S. is already in enormous debt, with Treasury data showing public debt topping 12 trillion U.S. dollars in November last year, the highest ever. To pay for the deficit, the U.S. federal government will borrow 392 billion dollars in the January to March quarter of 2010, according to a Treasury Department statement released Monday. It will then issue 268 billion U.S. dollars of treasury bonds in the second quarter. China is the biggest foreign holder of the U.S. government debt. As of the end of November last year, China held 789.6 billion U.S. dollars of U.S. treasury bonds. Moreover, more than 60 percent of China's 2.399 trillion U.S. dollar stockpile of foreign exchange reserves - the world's largest - is in dollars. Cao Honghui, director of the Financial Market Research Office of the Chinese Academy of Social Sciences (CASS), a government think tank, said the massive U.S. deficit spending and near-zero interest rates would erode the value of U.S. bonds. The U.S. government should not transfer the problems of enormous debt to other nations or regions that are creditors like China, he added.Too bloody right. I reckon the Chinese government should demand nuclear powered aircraft carriers rather than more Treasury bonds when they're asking for repayment.
"The approach that we're taking is to try to get much tougher about enforcement of existing rules, putting constant pressure on China and other countries to open up their markets in reciprocal ways," Obama told a meeting with Senate Democrats on Wednesday. "One of the challenges that we've got to address internationally is currency rates and how they match up to make sure that our goods are not artificially inflated in price and their goods are artificially deflated in price." But Obama insisted he would not take a protectionist stance toward China, the world's third-largest economy, warning that "to close ourselves off from that market would be a mistake". Republican Senator Charles Grassley urged Obama to formally label China a currency manipulator to induce Beijing to raise the value of its yuan. Obama so far has resisted that step.But what if the Chinese actually want to devalue their currency rather than allow it to appreciate? There are some credible thoughts bubbling up that China actually wants to devalue the Yuan/Renminbi further. Here's Marshall Auerback at Creditwritedowns saying the Chinese may want to devalue to improve the competitiveness of exporters in the wake of inflation buliding right now.
More importantly, real economic growth may now be fast enough to create resource bottlenecks. Consequently, inflation in this quarter and coming quarters may exceed all expectations. Inflation actually erodes Chinese competitiveness. What if the big surprise is that we get a devaluation of the remnimbi? One aspect of this implies a loss of competitiveness amongst Chinese manufacturers, which might suggest future WEAKNESS in the yuan, not strength, as the West has been pushing for. This might actually explain the Chinese reticence not to revalue.
GSEE, which represents about 2 million workers in the private sector, voted at a meeting in Athens today to walk out Feb. 24. The main public-employee union plans a Feb. 10 strike to protest spending cuts as Papandreou steps up budget cuts to persuade investors Greece won't need a bailout. "It is still the beginning," Stathis Anestis, the GSEE spokesman, said on the telephone today. The slogan for the strike is "people come first, markets and profit second," he said. Anestis reiterated the union's view that Papandreou's government "succumbed" to the markets. Greece's plan to narrow the budget gap won European Commission backing yesterday after the government announced more measures to reduce the shortfall. Papandreou promised to increase fuel taxes and raise the retirement age, while retreating on a promise to raise wages faster than inflation, a pledge that helped him win elections in October. "The first part of the action plan is on its way and now has the EU's approval," said Ioannis Sokos, a London-based interest-rate strategist at BNP Paribas SA. "What remains is the second part which has to do with the Government versus the Greek people. This is as tough as the first part."5. Here it comes - The Dow is slumping towards 10,000 again as Americans are facing up to the enormous debt mountain they have, the inevitable de-leveraging to come and what it means for employment growth. Here is Alan Sloan from the Washington Post pointing out from a Congressional Budget Office report that for the first time in 25 years the US Social Security System will take in less tax receipts than it pays out in 2009/10. The is before the babyboomer bulge bankrupts America. HT Troy via email.
Instead of helping to finance the rest of the government, as it has done for decades, our nation's biggest social program needs help from the Treasury to keep benefit checks from bouncing -- in other words, a taxpayer bailout. No one has officially announced that Social Security will be cash-negative this year. But you can figure it out for yourself, as I did, by comparing two numbers in the recent federal budget update that the nonpartisan CBO issued last week. The first number is $120 billion, the interest that Social Security will earn on its trust fund in fiscal 2010 (see page 74 of the CBO report). The second is $92 billion, the overall Social Security surplus for fiscal 2010 (see page 116). This means that without the interest income, Social Security will be $28 billion in the hole this fiscal year, which ends Sept. 30.6. Check out the US Debt clock to give yourself a headache and a brief case of nausea. Don't look at it too long or you will go blind. HT Neville Cropp via email. 7. Brits get serious - Investment banks in London have been told they need to tear up contracts guaranteeing their bonuses or their banking licenses will be withdrawn, The Telegraph has reported. Yowser. That's one serious regulator. Thank goodness they're not pushovers like the Americans. HT Kevin via IM
In an extraordinary ultimatum that has shocked some of the City's biggest companies, the Financial Services Authority (FSA) told bank bosses that 60pc of all pay must be deferred, with no exceptions, even for those whose contracts conflicting with the edict. Many of the global players have in recent weeks made representations to the City watchdog, in particular about pre-existing employment contracts that guarantee bonuses over a year or more. But their appeals have been met with the FSA's toughest yet response. One pay executive in a major bank told The Daily Telegraph: "The message came back that while the FSA agreed that it does not have jurisdiction over contractual law, it does have jurisdiction over issuing bank licences in London, and that we should go away and unwind the contracts."8. Phishing for hot air - Here's more fuel for the global warming sceptics and critics of carbon trading schemes. Der Spiegel is reporting (luckily in English) that cyber-thieves have made US$4 million by tricking companies into giving them information that allowed them to trade emission permits fraudulently. New Zealand is involved too, but there's no indication that any New Zealand companies were burnt. Of course this could happen for anything traded electronically, but I wonder if it's easier when the thing being traded is so notional and created more by regulation than anything physical. Cue global warming debate outrage and defence.
According to a report in the Wednesday edition of the Financial Times Deutschland, hackers sent e-mails last Thursday to several companies in Europe, Japan and New Zealand which appeared to originate from the Potsdam-based German Emissions Trading Authority (DEHSt), part of the EU's Emission Trading System (EU ETS). Ironically, the e-mail said that the recipient needed to re-register on the agency's Web site to counter the threat of hacker attacks. The cyber-thieves then exploited the user data that was entered into their spoof Web site to transfer emissions allowances to other accounts, mainly in Denmark and Britain, from which they were quickly resold. The new owners of the allowances would have assumed that they had acquired them legally.9. Totally irrelevant video of impending boat destruction. HT Tory via email.
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