Here are my Top 10 links from around the Internet at 10 to 8 pm, brought to you in association with New Zealand Mint for your reading pleasure. I welcome your additions and comments below, or please send suggestions for Wednesday's Top 10 at 10 via email to bernard.hickey@interest.co.nz. I'll pop any surplus suggestions I get into the comment stream under the Top 10.
1. Loan shark trucks - Simon Collins at the NZ Herald reports on how teenage girls (who are often solo mums) are getting into tens of thousands of dollars in debt by buying designer clothes from trucks atttached to loan sharks (or should that be loan sharks attached to trucks...). Grrrrr. HT Gareth.
In one case, a former teen mother who is now a grandmother, aged 35, has racked up debts to eight finance companies totalling more than $50,000. Social worker Rhonda Tautari said many young mothers were getting into debt as young as 16, when they qualify for the emergency maintenance allowance.
"We have girls that sign up to about four [clothing] trucks when they're 16," she said. "There should be an age limit of 18."
Clothing trucks and "loan sharks" were a prime target at the Manurewa forum held by the Alternative Welfare Working Group, which is holding hearings to provide an alternative to the Government's official working group aiming to reduce welfare dependency, chaired by economist Paula Rebstock.
2. In praise of inflation - James Suroweicki writes at the New Yorker why inflation may have to be used to fix America's debt problem. This is the crux of the argument. And explosive with it. No wonder gold is hitting record highs.
Inflation helps debtors and spenders at the expense of creditors and savers. It’s easy to see why this makes us uncomfortable. It seems to reward those who have behaved recklessly, and to punish those who played by the rules, saving their money and living frugally.
But the economy doesn’t exist, in the end, to reward virtue and punish vice. It exists to maximize our well-being, and, currently, doing that may require helping the undeserving and irresponsible, if only because there are so many of them. Boosting inflation isn’t the right policy, but it may just be the correct one
3. The case against home ownership - Time Magazine's Barbara Kiviat has written a detailed piece arguing that home ownership let down America. HT Stephen Olsen via email.
The dark side of homeownership is now all too apparent: foreclosures and walkaways, neighborhoods plagued by abandoned properties and plummeting home values, a nation in which families have $6 trillion less in housing wealth than they did just three years ago.
Indeed, easy lending stimulated by the cult of homeownership may have triggered the financial crisis and led directly to its biggest bailout, that of Fannie Mae and Freddie Mac. Housing remains a drag on the economy.
4. It's the demand not the financing - This chart below from Economix on what is constraining US small businesses is interesting because it shows that taxation and financing are not the major problem. A lack of sales and demand is the major issue.
Additionally, lending help for small businesses is another key stimulative policy in play, and meanwhile financial and interest rate concerns are a comparably negligible concern. By contrast, the share of companies saying the poor sales is their main challenge has about doubled since the downturn began.
Exactly how to address soft demand, though, is even more complicated and contentious than supply-side policies like cutting taxes or providing interest-free loans.
Given waning confidence in the Fed, the FOMC probably feels that it can't go the safe route and announce a few hundred billion in new asset purchases, with more to come if needed, as each subsequent purchase would further reinforce the idea that the Fed is actually powerless.
It needs to alter expectations, and that, it may calculate, will take a significant announcement, of $2 trillion in new asset purchases or more. And once it has done that, it will own the recession. The Fed can buy credibility and with it an end to disinflation and much of the pain of the slow recovery. But doing so would put the Fed on the hook in the event that policy fails.
6. The real problem is distribution - Robert Reich says America can't fix its problems by forcing China to revalue its currency. It actually needs to rebuild its middle class.
American isn’t suffering high unemployment because we’re buying too much from China and not selling them enough. Trade with China is a small portion of the U.S. economy. Twenty million Americans lack jobs because American consumers – especially America’s vast middle class – can no longer spend what’s necessary to keep nearly everyone employed. After three decades of stagnant middle-class wages, during which almost all the economic gains have gone to the top, we’ve finally reached a day of reckoning.
The middle class can no longer borrow vast sums by using their homes as ATMs. They can’t squeeze more working hours out of two wage earners. And they have to start saving for retirement. The central challenge we face isn’t to rebalance trade with China. It’s to rebalance the American economy so its benefits are more widely shared.
I would contend that China is now playing a very, very dangerous game. With the US trade deficit deteriorating again , and – much to my surprise – the Chinese trade surplus widening, patience is rapidly running out in the US with China’s currency policies.
I believe we are now nearer to an outbreak of trade war than at any time since the 1930s. Any downturn in the global economy back into recession would almost certainly guarantee such a result, as the political pressure to do something mounts.
This all sucks capital out of the system and increases risk premia and longer term interest rates for everyone.
9. Worth it for the chart alone - Here's Steve Keen on US private sector debt deleveraging.
The aggregate level of private debt now towers over the economy, putting into sharp relief the obsession that politicians of all persuasions have had with the public debt. Rather like Nero fiddling as Rome burnt, politicians have focused on the lesser problem while the major one grew out of control. Now they are obsessing about a rise in the public debt, when in a very large measure that is occurring in response to the private sector’s deleveraging.
10. Totally irrelevant video - Stephen Colbert says he wants to march to keep fear alive.
| The Colbert Report | Mon - Thurs 11:30pm / 10:30c | |||
| March to Keep Fear Alive Announcement | ||||
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