90 seconds at 'Nein' am

90 seconds at 9 am: Bundesbank criticises talk of unlimited bond buying by ECB as creating 'significant stability risks'; Eurostoxx down; Dow flat; NZ$ steady

21st Aug 12, 9:00am by Bernard Hickey

Here's my summary of the key news overnight, including comments from Germany's Bundesbank that it was critical of talk the European Central Bank (ECB) would buy European government bonds to calm financial markets.

The comments may unsettle the optimism that had calmed markets in recent weeks after the ECB President Mario Draghi commented he would 'do whatever it takes' to save the euro, triggering talk the ECB would launch an unlimited bond buying spreee to push down Italian and Spanish bond yields.

The Telegraph reported the Bundesbank opposed ECB bond buying and Bloomberg reported the Bundesbank said such government bond buying posed 'significant stability risks'. See more here at Reuters.

However Spanish and Italian bond yields fell on optimism about the bond buying plan sparked by yesterday's Der Spiegel report that the ECB would consider a plan at its September 6 meeting to launch unlimited bond buying targeting caps on bond yields. The ECB rejected the suggestion in the report that it had already made a decision, but was careful not to say it would be considered. See more here on the rejection.

Meanwhile, the Greek crisis continues to bubble away with Der Spiegel reporting Greece would have to find another 14 billion euros in cuts over the next two years to satisfy its donors. See more here at BBC.

Elsewhere, Chinese stocks fell to a 1 month low after the Peoples Bank of China said in its own newspaper it did not plan another Reserve Ratio Requirement cut in the short term. See more here at Bloomberg.

See our article and video from last night on how China's hard landing will affect Australia.

The Dow closed flat, erasing earlier losses, while European stocks ended down around 0.2%.

The New Zealand dollar was broadly unchanged at 80.9 USc in early morning trade.

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31 Comments

by Gummy Bear Hero | 21st Aug 12, 9:20am 1345497622

Two quotes , if I may , from Roger Bootle's book ( " The Trouble With Markets " ) , to illuminate us , through the day :

" Capitalism always throws up problems and failings . This is neither surprising nor a fatal criticism . Society has to find a way of either living with them or correcting them . " ( p, 245 )

"....... markets , and not governments , are best at allocating resources . Individuals - and their families - need to be left with control over the fruits of their labors . " ( p. 249 )

by Trolleyboy | 21st Aug 12, 9:25am 1345497948

""....... markets , and not governments , are best at allocating resources . Individuals - and their families - need to be left with control over the fruits of their labors . " ( p. 249 )"

So you accept the unsupported statement, because it supports your own prejudices?

Is there any evidence that this starement is true? How would you prove it, if it was a scientific proposition, rather than a political statement?

by scarfie | 21st Aug 12, 9:41am 1345498893

And the trouble with the other statement is economists and commentators are recognising. We don't practice capitalism, instead we have creditism.

In the past solutions have been solved because there were always the resources to tap into. Today is a new paradigm where we have to learn to adapt to a decreasing pool of resources(captial). We will never see capitalism again, the game has changed. Not to say we won't adapt, but most are still fighting the change to their detriment. Those that adapt first and fastest will be the survivors.

by JackJill | 21st Aug 12, 11:25am 1345505159

capitalism is private ownership. communism had capital and credit; it is state ownership.

by scarfie | 21st Aug 12, 1:12pm 1345511550

I think control might be better applied that ownership. Control is certainly a function of capitalism or production, but doing it on credit shifts control to the creditor and then it no longer functions as such. This is why credit not really capital.

Edit: Control can also shift to a third party(directors) under this scenario rather than the owner of the debt (shareholder).

Further to this credit is a claim on future resources, a claim that can no longer be underwritten thus undermining its function further. It could perhaps be argued that creditism was a response to a lack of resources and is simply a tool for (inequitable?)distribution, where the recieving party does so on the basis of interest that can not be repaid.

My hazy thoughts for early in the week anyway.

by notaneconomist | 21st Aug 12, 8:24pm 1345537471

And then there are all the mixes that get thrown into the pot. Socialism, Nepotism, Corporatocracy, Fascism etc. The first 3 are all alive and thriving in NZ.

by Gummy Bear Hero | 21st Aug 12, 8:35pm 1345538121

Gloomsterism ........... 4 !

by notaneconomist | 21st Aug 12, 8:57pm 1345539421

Oh GHB - you make these pages interestism with lots of laughism.

by scarfie | 21st Aug 12, 10:31pm 1345545095

So by that definition a publicly listed company is no longer a capitalist operation? I know you think these thing through well:-)

by notaneconomist | 21st Aug 12, 8:08pm 1345536512

Trolleyboy - You Sate: "Is there any evidence that this statement is true? How would you prove it, if it was a scientific proposition, rather than a political statement"?

We have been applying Economic Theory for years and each populace is just another guinea pig. Economics is a Social Science not a natural science and therefore normal scientific measurements are not able to be made.

Economics as a Social Science is always influenced by people and their beliefs and behaviours.

Governments and their Agencies are not best at allocating resources - if we need proof of this look at the mess the worlds financial system is in. We can blame the banks or we can blame those who passed the legislation. The buck stops with those who wrote the rules and bent over backwards to accommodate the business needs of the Corporates. Big business in bed with Govt is CORPORATOCRACY.

NZ has not experienced a proper Capitalist system in my life time of 50 years. People don't seem to understand Capitalism and get confused with all the Socialism that is mixed in under the myth of Capitalism.

Wouldn't it be nice to run a scientific experiment of Capitalism in NZ. But unfortunately this can never be done because of all the present and future commitments to spending that would affect the most vulnerable of our society and Government and big Corporates like it this way.

by Gummy Bear Hero | 21st Aug 12, 8:33pm 1345537991

If memory serves , NZ gave capitalism a test run in 1985 / 86 ...... but after two arduous years of having to pay our way in the world , and being personally responsible for our actions , we decided that it was altogether too hard an ask , and we needed a rest , and cuppa with David Lange .......

...... the longest cuppa in history , 'cos we went back to the easier route of borrowing hand-over-fist from foreigners , granting each other entitlements & welfare packages , gifting more power to local and national government ......

And poor old capitalism withered on the vine ..... .... excuse me , off to shed a Gummy tear ... so sad !

by Plan B | 21st Aug 12, 9:58am 1345499924

My arguement is that National do not really like free markets and competition at all. Business people hate free markets and competition when they are on the inside because free markets and competition are hard. Really hard. The ones on the inside ( ie those with established businesses) are the ones who have the greatest ability to influence government to lessen the threat of free markets nad competition and they do this in many ways. Helpful rules to make us safe are one easy way to raise the barriers to entry.

The proposed Electricity sell off has nothing to do with free makets and competition, they are selling a cartel piece by piece and what is being purchased is an opportunity to rent seek. A market for electricity in NZ would aknowledge.

1. The network cannot be owned by anyone

2. Hydro power is the cheapest electricity supply and needs to be own by everyone because. It simply works, is patently not a competitive market It requires use of mountains, rivers, lakes and streams to function ie Hydro is essentially a political decision not a market one.

Other areas of electricity could then become competitive, areas such as energy effeciency, wind, wave and solar could be opened up to real innovators. Not exsiting hydro companies that can play at the margins.

Our bills would look something like this.

1. Network cost- at cost

2. Hydro - at cost

3. Competitive new entrants energy supply - these players would fight at the margin

ie sepatateing out the elements, you could say that this is artificial, but so is pretending that simply giving rent seeking opportunities to capital makes a real competitive market.

In industry after industry National forgo the opportunities of free markets and competition and instead negotiate with incumbants. It makes National look sleazy and it gives NZ a poor outcome. But they simply cannot help themselves.

by Christov | 21st Aug 12, 10:11am 1345500709

Really good post Plan B.......by jingo I think you see it...!

Although......makes National look sleazy...?...no ,no, no, exposes them as sleazy ...yes...exposes the (so in your face) contempt for the public at large...yes....are they even concerned to having their game tumbled.....no....as it was always a fait accompli.

by Stephen Hulme | 21st Aug 12, 10:18am 1345501117

Yep, Joyce certainly exhibits the contempt gangsters have for society at large.

by wtf | 21st Aug 12, 10:58am 1345503512

Every business wants to get as close to possible to a monopoly to enable them to make the most profit. Biggest players use their position to try and crush new entrants before they can get established, including under cutting on price for a short period to remove any price incentive for change. Predatory pricing/loss leading or good business? Whatever its not free markets as per the text books.

by steven | 21st Aug 12, 11:30am 1345505422

"Business people hate free markets and competition when they are on the inside because free markets and competition are hard."

Correct, if no one hands them a monopoly they will try and create one....but its really how it works, hence regulation.

regards

by notaneconomist | 21st Aug 12, 8:51pm 1345539107

BIg business getting into bed with Govt is where some of the worse regulations and monopolies are created.

by Stephen Hulme | 21st Aug 12, 10:11am 1345500687

....... markets , and not governments , are best at allocating resources . Individuals - and their families - need to be left with control over the fruits of their labors . " ( p. 249 )

Would some one tell that to the hegefunds loaded to the gills with Apple - a three product widget company?

by steven | 21st Aug 12, 10:25am 1345501553

Truble is with such politically blinkered books is when we look at real world examples such as the US healthcare and UK/NZ healthcare systems we see a better results from the public one for 1/2 the cost.

regards

by steven | 21st Aug 12, 11:27am 1345505271

We are talking at a National and economic level and not individual....statistics and costs.

if you want bad stories, well I have bad stories like my uncle who went in for a minor op to a private hospital and had a heart attack....they didnt have the kit or on call doctor to realise this for 2 days. He then had a second and passed away on the way to a public hospital intensive care unit.

Or friends of mine who as junior doctors were expected to work in consultants private hospitals for free while already doing 60 hours weeks in public ones....

Ive had good stories with public like being put in a bed after walking into A/E and collapsing, had a camera where the sun has never gone to find out why........I couldnt have asked for a better or faster service and caring staff.

NB surgical consultants are usually the same ones in private care and public....they do both.

regards

by Stephen Hulme | 21st Aug 12, 11:59am 1345507192

Be careful what you wish for you just might get it? Read how

by scarfie | 21st Aug 12, 10:34pm 1345545295

Did you actually manage to read all of that without falling asleep?

by scarfie | 21st Aug 12, 10:36am 1345502185

Gummy I am still laughing at your peak gloomsterisation comment from yesterday. Good one.

Just to put another perspective on your consistent calls on this though. You make the presumptuous call that everyone is happy with the status quo.

by benwave | 21st Aug 12, 11:47am 1345506441

GBH, what does Roger Bootle say directly before and after the second quote?

by Gummy Bear Hero | 21st Aug 12, 12:49pm 1345510146

.... will have to find the answer for you , later , as I'm at TAFE just now ...

Although , given the strident & stinging responses to the 2 quotes ( above ) , I may have to Bootle that paticular book into touch !

by Gummy Bear Hero | 21st Aug 12, 8:14pm 1345536852

Nor does the thrust of this book endorse heavy state borrowing . On the contrary , once the need to support aggregate demand in the current downturn is over , it argues that governments should tighten fiscal policy gradually to bring the public debt-to-GDP ratio down sharply - and to keep it down . In principle , this could be achieved either by increasing taxation or by cutting spending . In my view , however , it should overwhelmingly be done by the latter .

Although this book has discussed aspects of the market system that do not work very well , its fundamental stance is that markets , and not governments , are best at allocating resources . Individuals - and their families - need to be left with control over the fruits of their labors .

( thence follows a paragraph listing prominent economists whom the author rates highly : Keynes / Galbraith / Minksy / Stiglitz / Taleb ..... and statesmen Mahathir Mohammed & Lee Kwan Yew )

by Henry_Tull | 21st Aug 12, 8:58pm 1345539499

so should we out source govt. operations to Singapore...

if not, why not.

by Gummy Bear Hero | 21st Aug 12, 10:43pm 1345545793

Our prisons are full to overflowing , so I have no problem with sending the worst offenders off to chokey in Bali , if Indonesia accepts a contract to " care " for them .....

..... that should save a bundle from the Corrections Dept. budget ......

Start with the hardened crims , the real dregs , anyone from GBH and up ......

by Henry_Tull | 22nd Aug 12, 1:37pm 1345599458

Hey, big picture, we thought of them coming down here and running the bureaucracy.

not just lopping bits off to be "processed" o/s....

by benwave | 21st Aug 12, 11:22pm 1345548123

Thanks for the clarification. Always good to get context!

by goldenfox | 21st Aug 12, 12:41pm 1345509664

Hugh, anecdotally Melbourne real estate is very sick. Its been stagnant for the past year however after the stamp duty and first home buyer grants withdrew its been declining noticably. Confidence is very low, all The Age reports is job losses (Ford, Fairfax, Qantas, alot of retailers, ANZ, NAB, Toyota all cutting). These are jobs associated with people in the rust belts - Broadmeadows, Sunshine, Glen Waverley.

Inner city is ok, although alot of Southbank and Dockland apartments are available to lease. So someone is hemoraging money paying the mortgages on empty apartments.

Lot prices might be coming down, but who are the buyers and what industry are those buyers working in? They have announced approval for another 8 suburbs but it will be a long time till they are built, I bet the banks are quitely telling them to slow it down - so supply and demand are better balanced.

The RBA needs to do something about the two tier economy. Its simply too cheap to offshore everything at the moment from Middle Office Banking to Aircraft engineering.