Here are my Top 10 links from around the Internet at 10 past 10am, 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.
1. 'The Global Banking System is broken' - The mood of anger is building in the Northern Hemisphere is building against the 'Too Big To Fail' banks that were bailed out and then promptly went back to their old proprietary trading and bonus-raking games while restricting lending.
The shock is now starting to settle in. The bailout didn't work.
America is going into a double dip recession, forcing its central bank to print money.
Yet the bankers still make their bonuses and complain about high taxes. See below.
Something ugly is brewing over there.
Here's Ann Pettifor at HuffPo. HT John via email
A report out today, "Where did our money go?" from the London-based new economics foundation ( declaration of interest: I am a Fellow of NEF) -- reveals that net lending to households and firms is negative. British banks are currently borrowing £12 billion ($18bn) a month to maintain existing levels of activity.
According to the Bank of England, by 2011 they will have to borrow £25 billion ($39bn) a month -- and the Bank is sceptical they can continue to raise that level of funding. According to the Bank of England UK banks are not alone in facing a significant refinancing challenge.
Global banks are estimated to have around US$5 trillion of medium to long-term funding maturing over the next three years, and 'the scale of competition for funds in global markets' is intense. By borrowing from the real economy, and then refusing to lend, except at high rates of interest, bankers are effectively performing a lobotomy on the real economy. They are cutting critical credit connections to and from the vital 'cortex' -- the region of the economy responsible for investment and the creation of jobs.
Without a sound banking system and cheap, carefully regulated credit, the public and private sectors will not invest in e.g. green jobs or infrastructure. Output will continue to plummet, and unemployment and poverty to rise.
2. 'Things will unravel faster than you think' - Independent banking analyst Chris Martenson is a very close observer of America's banking system and economy.
He thinks we're on the brink of something big. He's not sure when or how much or what will trigger it. A must read.
Far too many people expect events to unfold in a more or less orderly manner, with plenty of time to adjust along the way. In other words, linearly. The world does not always cooperate, and my concern rests on the observation that we still face the convergence of multiple trends, each of which alone has the power to permanently transform our economic landscape and standards of living.
Three such trends (out of the many I track) that will shape our immediate future are: Peak Oil, Sovereign insolvency and Currency debasement
Individually, these worry me quite a bit; collectively, they have my full attention. History suggests that instead of a nice smooth line heading either up or down, markets have a pronounced habit of jolting rather suddenly into a new orbit, either higher or lower.
3. 'My class is winning' - Warren Buffett acknowledges in this interview in the New York Times that the rich don't pay nearly enough tax in America and it's not fair. He's onto it.
Tell that to the Tea Party though, which is having its strings pulled by the uber-rich.
Mr. Buffett compiled a data sheet of the men and women who work in his office. He had each of them make a fraction; the numerator was how much they paid in federal income tax and in payroll taxes for Social Security and Medicare, and the denominator was their taxable income. The people in his office were mostly secretaries and clerks, though not all. It turned out that Mr. Buffett, with immense income from dividends and capital gains, paid far, far less as a fraction of his income than the secretaries or the clerks or anyone else in his office.
Further, in conversation it came up that Mr. Buffett doesn’t use any tax planning at all. He just pays as the Internal Revenue Code requires. “How can this be fair?” he asked of how little he pays relative to his employees.
“How can this be right?” Even though I agreed with him, I warned that whenever someone tried to raise the issue, he or she was accused of fomenting class warfare.
“There’s class warfare, all right,” Mr. Buffett said, “but it’s my class, the rich class, that’s making war, and we’re winning.”
4. '19 facts about the Deindustrialisation of America that will make you weep - BusinessInsider has one of those fancy slide shows to make you click a lot. A bit cheeky but basically right. HT Blair via Twitter.
The United States is rapidly becoming the very first "post-industrial" nation on the globe. All great economic empires eventually become fat and lazy and squander the great wealth that their forefathers have left them, but the pace at which America is accomplishing this is absolutely amazing. It was America that was at the forefront of the industrial revolution. t was America that showed the world how to mass produce everything from automobiles to televisions to airplanes.
It was the great American manufacturing base that crushed Germany and Japan in World War II. But now we are witnessing the deindustrialization of America.
Tens of thousands of factories have left the United States in the past decade alone. Millions upon millions of manufacturing jobs have been lost in the same time period. The United States has become a nation that consumes everything in sight and yet produces increasingly little. Do you know what our biggest export is today? Waste paper.
5. 'Concrete plans' - CNN reports on how a protestor at Ireland's bailout of Anglo Irish Bank tried to ram the gates of parliament with a concrete mixer truck. Things are getting ugly in Europe too.
An outbreak of national gaiety ensued, from the streets to the Twittersphere: "Finally the government has some concrete plans," said one; "The government must be mortarfied," said another. But there was not much merriment in Mr Lenihan's speech.
After a battering in the bond markets, where the theoretical cost of government borrowing rocketed last week to record highs of 6.9 per cent and bond yields became virtually the only topic of conversation in Dublin, the finance minister desperately needed to draw a line under a banking crisis that has come close to sinking the economy. There have been many "moments" in Ireland's crisis, but this looks like the make-or-break one.
6. 'The Fed will not survive' - Nassim Taleb has a few thoughts on the future of the US Federal Reserve, HuffPo reports.
"This transformation from private debt ... to public debt" is "bad" from a risk standpoint and "immoral" from an ethical standpoint, Taleb -- a member of the Derivatives Hall of Fame whose book became a bestseller -- told a crowd at the Washington Ideas Forum, an event held by The Atlantic and The Aspen Institute.
Deficits "will break the Fed" and it will be replaced, he predicted. "The Romans had a saying," Taleb added: "The grandchildren should not bear the debt of the grandparents." That debt is made more dangerous, Taleb said, by the increasingly complexities of the financial system, a problem that he said has not been ameliorated during the last three years.
"Debt and complexity are not friends," he said, because "complexity causes unpredictability," and heavy debt burdens mean one false move, whether by an individual actor or a system, could spell disaster.
7. Alternative currency - China and France are working on building an alternative reserve currency, Zerohedge points out. They had better get a move on./
The FT reported that France and China had been in secret talks over "heightened co-ordination of exchange rates" which is another way of saying finding alternatives to the rapidly debasing US Dollar.
"The talks and their content have been kept secret, in an attempt to draw China into a discussion on global currency co-ordination, a subject that Beijing has been reluctant to countenance in the past. In an ambitious move reminiscent of the currency accords of the 1980s, President Nicolas Sarkozy hopes to open a debate on the subject when France takes over the presidency of the G20 group of leading nations in November, according to people familiar with the matter."
Yet China's desire to engage in a currency axis away from the US is no secret, and many have alleged that Beijing has approached both Russia and Germany in the past about a USD substitute
8. A recurring meme - This Newsweek article from August about how renowned billionaire hedge fund trader Stephen Schwarzman complained about a higher tax by comparing Obama to Hitler has turned into a recurring theme.
Public anger in America is growing at how the bankers drove through bailouts and are back to their merry bonus-raking ways while the public (eat cake) suffer with high unemployment and monstrous debts. We'll hear more about this.
I'm still amazed frankly that many of the Manhattan bankers still believe they have a right to earn gazillions and that the little people should just shut up. In ancient times their heads would already be on pikes.
The chairman and cofounder of the Blackstone Group, one of the world’s largest private-equity firms, amped up the rhetoric. Stephen Schwarzman—the leading John McCain supporter in a firm that, in 2008, gave more money to Obama—was addressing board members of a nonprofit organization when he let loose. “It’s a war,” Schwarzman said of the struggle with the administration over increasing taxes on private-equity firms. “It’s like when Hitler invaded Poland in 1939.”
9. Currency wars bulletin board - The New York Times has a nice wrap on where the currency wars are at right now. Everyone is joining in.
Some economists argue that the standoff over China’s currency could herald a new era of protectionism reminiscent of the 1920s and ’30s, which they say they fear could undermine trade and make a weak recovery even weaker. But others argue that it was the free-market consensus of the 1980s and ’90s that weakened American competitiveness and was exploited by rising powers like China, calling for a more assertive policy to protect jobs, increase exports and keep industry at home.
“Everyone’s playing beggar-thy-neighbor games, willingly or unwillingly,” Michael Pettis, a Peking University professor and economist at the Carnegie Endowment for International Peace, said in an interview. “This is very similar to what happened in the ’30s, when the collapse in Europe’s ability to finance itself also meant a collapse in its trade deficit, and the world rushed around trying to find a new equilibrium in which every country tried to grab a larger share of the dwindling global demand.”
10. Totally irrelevant video - It seems the main marketing vehicle for airlines these days is the safety message video. Air NZ went naked (in an ad).
Here Cebu Pacific's attendants get jiggy with it. The next step is for the Air NZ hosties to really go naked. Or maybe not...certainly not unless they're as good looking as this hostie. HT Ken Freer via twitter.
43 Comments
If I have to spend 5 hours in Cebu Pacific's atrocious un-airconditioned Manila barn-airport again , I'll demand that the hostie in the video spends the flight on my lap doing the safety routine , as recompense .
Ditto…even though I have never flown Cebu. Also, I would have to put her in the "top 10 hottest flight attendants EVAR list"
Erm arent they meant to do those safety demos BEFORE takeoff? Judging by the background noise and the movement they would seem to be somewhere over the Pacific?
They do things a little differently over here in the Philippines , for better and for worse ................. The hostie in the video was the better part . ............... The 11 hour power " brown-out " last Sunday , from 6:30 a.m. to 5:30 p.pm. , was the worse part .
Reuters reports on how the really rich seem to be losing faith in fiat currencies and electronic based financial markets, although not everybody... http://www.reuters.com/article/idUSTRE6932NR20101004
"We had a clear example of a couple buying over a ton of gold ... and carrying it to another place," Stadler said. At today's prices, that shipment would be worth about $42 million.
Ambrose Evans Pritchard at the Torygraph says the IMF has virtually admitted that the West is stuck near a depresssion.
If you strip away the political correctness, Chapter Three of the IMF's World Economic Outlook more or less condemns Southern Europe to death by slow suffocation and leaves little doubt that fiscal tightening will trap North Europe, Britain and America in slump for a long time.cheers...I think...
What ppl have been saying for months.........
Why are they so slow in seeing it..........
regards
re #3. I think Buffet is a bit of a hypocrite on the subject of taxes. If he was so concerned he doesnt pay enough he'd pass his estate onto his kids & let the Govt take a huge whack via their estate taxes. By gifting it to Bill Gates charity he is avoiding this altogether. His investment strategy has also minimised the amount of tax he has paid over the years to maximise the effect of compounding.
I dont agree with what he's saying on income taxes either. Sure, the percentage may be less, but the actual $$$ amount will be far, far greater than that of his office staff. Why should the uber rich have to more to make the percentages match? This is effectively subsidising the lower income tax payers. I guess it goes back to the whole reason income taxes started in the first place, "Tax the Rich", old Robin Hood theory, except the very people that voted for those policies now have to pay the taxes as well, and the uber rich can sometimes get around these, legally, when earning from assets, rather than from a "job".
Mark Thoma points to research showing how pay structures lead to bad incentives. This is the problem with the current model of western pension fund owned multinational capitalism. The CEOs and their bankers seem determined to make themselves wealthy courtesy of acquiescent shareholders, taxpayers and regulators.
Bonuses and options packages have the property that the trader who does extremely well can look forward to a multimillion-dollar bonus but is not penalized millions of dollars when he or she does badly. Similarly, the recipient of an options package experiences a large windfall when the price of the company’s stock increases. But if the stock does extremely badly, he or she pays no penalty relative to the case when the stock drops modestly.
The bowed shape of the payoff function is called a “convex payoff.” It is the bowed shape that creates the bad incentives, specifically the incentive to take on too much risk.
The stockholders of financial firms—or, in cases in which government support is extended, taxpayers—have the opposite payoff. They benefit from a fraction of the gains, but bear all the losses. Therefore they may be made worse off by a risky investment strategy even if the strategy itself has favorable odds. Convex payoffs create what is called an “agency problem.” The executives have interests that diverge from those of the stockholders, for whom they are supposedly working.
cheers
Bernard
And how Solid Energy's Don Elder made NZ$1.4 million in salary and bonus last year
http://www.stuff.co.nz/business/industries/4195622/Solid-Energy-boss-quids-in-despite-rejecting-rise
Is that fair/
cheers
Bernard
Zerohedge reports rare earth prices are up 600% as China squeezes the global market
http://www.zerohedge.com/article/rare-earth-metal-prices-explode-q3
cheers
Bernard
Wont be many Prius's /hybrids being built the next few years ;P
I posted that comment earlier:
Another war - this time about very important minerals is brewing. A demonstration of China’s often ruthless policy to achieve worldwide monopoly positions – a dangers scenario for Western economies.
http://www.mysinchew.com/node/45865
http://www.australianrareearths.com/
..and another reason, why NZ should "hang on" the Australia and some others, rather small well constructed countries.
Just to clarify that China does not have a monopoly on Rare Earths. They are simply the only country currently digging for them. These are not turn-key mining operations an will take a few months for other operations to come online in the next year or so.
China does have a monopoly on quality rare earth doped laser crystals. So say goodbye to quality telecommunications equipment, laser TV’s and other necessary lasers needs.
Troy - that is what I'm saying above:
At the moment we are beginning to see increasing corporate activity, by and large emanating from China, where cash strapped Australian ASX listed companies are seeing marked increases in China based companies on their share registers. This coupled with the global financial downturn has produced a situation where Australia may lose its' opportunity to become the world's Rare Earth Elements "swing" producer.
Lynas corporation (ASX:LYC) have a significant mine in Mount Weld Austrailia. They are currently building a processing plant in Malaysia which is scheduled for production in the 3rd quarter of next year. The Malaysian governement have given them a 12 year tax holiday to build the plant there. This will give them a full mine to market operation. Digging up rare earths is one thing, but having the expertise and building a concentration plant is quite another. LYC will be a year or two ahead of anyone else. Others, e.g. Molycorp in the USA, may be digging up the rare earths in a year or so but Lynas will have the jump on them.
Great link Walter
Those Australians are lucky, lucky bastards and we're lucky to be next to them.
cheers'
Bernard
Even Barack Obama is now saying America's fiscal position is "untenable."
This from Reuters.
http://www.nytimes.com/reuters/2010/10/04/business/business-us-obama-deficit.html?_r=1&src=busln
Yet the 2 year T-bond is still at 0.4%... I wonder who's buying the stuff...ah yes...the banks that are handed their money by the US Federal Reserve... Looks like a Hubbard style money-go-round to me...
cheers
Bernard
^^ Best not to invest in those companies, those who disregard their owners/shareholders.
Also, a high income doesnt always equate to being wealthy/rich. Most high income earners spend just as much as they earn.
Apparently investors in Irish bonds last week openly ridiculed the Irish Finance Minister to his face on a bungled conference call.
Hilarious if it wasn't so painful.
Here's the Telegraph on this
Here's Felix Salmon on it
http://blogs.reuters.com/felix-salmon/2010/10/03/wall-streets-trolls/
And here's the alleged phone call
http://www.zshare.net/audio/811167506d52d618/
cheers
Bernard
Two HuffPo articles and a Zerohedge - Christ Bernard, you've really fallen off the deep end with these round-ups.
Gives the big fella more time in Warren & Tarquain's Salon . ........ Latte and a boof ! Bernard needs alotta stress relief , given the criticism that some nerks ( ahem ! ) keep biffing at him .
rc - are you the one with "overdeveloped sense of entitlements" ? - love this expression....
Not even close :(
You could apply the same expression to Welfare recipients also..........
Here's Jim Kunstler on form about the foreclosure documentation mess that is unfolding in America at the moment. Foreclosures are suspended. The lawyers and insurers are sniffing around. Anyone who has read the The Big Short will realise the potential scale of the catastrophe there.
HT Nikki via email. "It is truly mind-boggling how the subprime fallout continues to redefine US society."
Yep. And it ain't over yet.
http://kunstler.com/blog/2010/10/posting-a-little-late-this-morning.html
"One can only see more Big Trouble ahead for the Big Banks in all this mortgage hugger-mugger, and of course the country as a whole. Sooner or later, somebody with a badge is going to demand to look inside their vaults and examine the paper they are hiding in there. And when that day comes, the truth will be revealed about the greatest self-swindling of any nation in the long, groaning history of the world. Nobody among the community of other nations will want to do anymore business with us - including the sale of any oil, and won't that be a funky day?"
cheers
Bernard
"Oh the banks are stuffed with silver.
"Theirs a guard at every door
"Oh the Banks are stuffed with silver
"That the workers sweated for...
We know what needs to be done..But if its not comfortable for lobby groups it will not be done..The trouble is..It looks like a Democracy?..might smell like a Democracy? but when you get to it and take a bite...It just dont taste like a Democracy.Thats the Achilles heel,instead of the natural best running things for the good of the majority..The rich get to run things for the sake of the minority.The majority dont want much,but the little they do have is being taken from them..The recipe for the pie is getting so debased, its unedible.Its a numbers game,and will get a lot nastier.
The fact is in the future. the working class,and the middle class are expensive extras, and no longer needed on stage.They will consume more than they produce,and be a liability,to the security of the landed gentry.The trouble is that their aint no Australia to send them to anymore.Shame...the probabilities are narrowing.
Brazil is doubling its tax on foreign investments in Brazilian bonds to 4% in a fresh escalation of the currency wars, the FT reports.
http://www.ft.com/cms/s/0/0a5d4b48-cffe-11df-bb9e-00144feab49a.html
Tony Volpon of Nomura Securities in New York said it was likely that Brazil’s move was largely symbolic, to respond to growing concern among the country’s exporters about the strength of the real and to show other nations that it was serious about responding to the depreciation of several other of the world’s major currencies.
“Brazil is saying that if China and Japan can do what they are doing and the US can do quantitative easing, which devalues the dollar, then we’re not going to sit here and take it,” he said.
Are we going to sit here and take it in NZ?
cheers
Bernard
I doubt John Key's government would do anything that would jeopardize NZ asset price. It would bring too much pain to New Zealand's wealthy folks.
No Bernard - I suspect NZ is going to to bend over and take it!
Ive Just been to a National bank meeting with Cameron Bagrie. They are starting to admit there is a bit of a problem. I still dont get it and they certainly dont. They tell farmers our $ is high because of high commodity prices at present and then forget to mention that even with high prices the average sheep and beef farmer on the east Coast is going to earn less than $30k this year. Thats meant to be good year! He thinks the Asian market is a bright spot but be careful because if the economy dips again it will be nasty. Failed to mention that it would get nastie for them too. My take is that we need a drop in production costs, but the Govt has left it too late,any attempt to cut costs now would have a terrible impact on employment. They ignore the cost to the productive sector because cutting costs = high unemployment, high unemployment = collapse in house values = Nation bank hanging in the wind. (got to love those banks)
They ignore that fact that they lend at multiples to deposits and for every $ paid in interest producers pay, %90 is for money created as debt by these monsters out of thin air. The farming debt problem is small fry compared to the potential bank losses in housing.
If there is one thing we are learning its that banks are not trustworthy when it comes to creating money as debt. The debt in the farming sector is in a large part a banking problem. Blue sky dairy sale to Harvard, didnt bail out the farmer he was in receivership it bailed out the bankers. Lets sell NZ , help get or bankers out of the sh*t.
I would assume the only way to cut production costs is reduce the cost of borrowing ie the size of te debt taken on to buy the farm...NZ farming I understand is pretty productive......so just where do savings come from?....I dont think for a moment farmers are inefficient....quite th reverse. Therefore the price of farms is significantly too high......
Banks trustworthy? no....hence they get regulated...
"NZ farming I understand is pretty productive".
Sure, but how much of that production is profitable?
Cut the production where margianl cost is greater than marginal revenue (MC > MR) and you have both saved cost and increased farm profit.
But neither processors nor government will be happy.
Indeed if it isnt profitable then there is no point in doing is one argument.........
The one I am making is there is a limit to how much an end product can be priced at...therefore if you cant make a profit based on what you over-paid for the land the land is [grossly] over-priced and has at some point the value at some stage drops....you go bankrupt. The bank takes a haircut when someone buys it at a sane price say 40% of what was originally paid, hey presto a profitable endevour for the purchaser...
regards
Agreed.
Overvalued assets and excessive debt are to a large extent self correcting.
Continued increases in costs though eventually take you to the point where even if a farm has no debt it will still not be profitable.
My point was that increasing production beyond the point where MC=MR reduces farm profitability i.e. further increases in production means less profit or higher losses.
Great Post AndrewJ - Now, where do I park the Concrete Mixer?
If the farmer is soo productive how do we end up with the average east coast sheep and beef farm earning $30K this year? In 1984 my costs were %35 of my gross income last year over %100, normally around %87 today. If the banks were trustworthy they wouldn't have given local managers loan targets, and lent against capital instead of Income.
I think we can leave this problem to sort itself out, just watch the production collapse,rural communities shrink and don t say no one told you. Local farmers after the meeting were talking of farm prices falling another %50, down to $250 a stock unit. I suspect %20 of farmers have all the debt. I think this year will see a noticeable contraction in exports in the farm sector, either that or we continue to consume ourselves by eating capital literally.
What I learned in High school: The product makes the wages.
http://www.lewrockwell.com/schiff/schiff116.html
Peter Schiff
Given the US dollar's status as the world's reserve currency, America's oversized status as the world's biggest consumer, and the influence of overseas export-oriented businesses on their home governments, the falling dollar is a difficult issue for many countries to ignore. And with the imminent arrival of a second round of "quantitative easing" from the Fed, the big guns of dollar destruction are being locked and loaded. The move looks poised to set off a frantic race to the bottom among global currencies, which will have important ramifications for every investor. Unfortunately, this is one race the United States is poised to win.
How does the chinese curse go? may you live in interesting times.....
Oh for peace and quiet......say 3 or 4 decades worth.......Ive had enough excitment I think in the lat 4 years to last that long.........
regards
This from Ft.com. A call for a new Plaza accord on currencies. HT John via email.
The world’s leading countries should agree a new currency pact to help rebalance the global economy, a leading association of financial institutions has urged.
The Institute of International Finance, which represents more than 420 of the world’s leading banks and finance houses, warned on Monday that a lack of such co-ordinated rebalancing could lead to more protectionism. Charles Dallara, IIF managing director, said: “A core group of the world’s leading economies need to come together and hammer out an understanding.
http://www.ft.com/cms/s/0/96d8b886-cfe1-11df-bb9e-00144feab49a.html
cheers
Bernard
" RBA holds rates in Ocker Shocker " : Bernard , it is this sort of daft sensationalising headlines which give some of us the pip . For one , I expected no RBA action today . Hardly a shocker to me . Perhaps not to many others .
So much hot air from you , watch out guy , that you're not stung for global warming .
Interesting comment......on the two schools of thought and their success in predicting
http://krugman.blogs.nytimes.com/2010/10/02/how-the-other-half-thinks/
Neill F (classical - neo-classical),
"I predict, in the weeks and months ahead, a very painful tug-of-war between our monetary policy and our fiscal policy as the markets realize just what a vast quantity of bonds are going to have to be absorbed by the financial system this year. That will tend to drive the price of the bonds down, and drive up interest rates"
PK, Steve Keen (Keynesian, Minsky)
"While the other side was making these predictions, people like me were saying that classical economics was all wrong in a liquidity trap. Government borrowing did not confront a fixed supply of funds: we were in a paradox of thrift world, where desired savings (at full employment) exceeded desired investment, and hence savings would expand to meet the demand, and interest rates need not rise. As for inflation, increases in the monetary base would have no effect in a liquidity trap; deflation, not inflation, was the risk."
So it seems we can sit back and see what unfolds and who is right......
"The point is that recent events have actually amounted to a fairly clear test of Keynesian versus classical economics — and Keynesian economics won, hands down."
Of course it isnt over until the fat lady sings......
regards
great to see the discussion of peak oil aware analysts such as Chris Martenson and Jim Kunstler.
Jeff Rubin formerly chief economist of CIBC World markets is one of the few economists who "gets" peak oil
his analysis has profound implications for New Zealand in terms of the unwinding of globalisation due to higher oil prices.
There is a great literature review on all the most recent reports on oil depletion and peak oil from credible sources
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