Here are my Top 10 links from around the Internet at 10 past 11 am, 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 Thursday'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. 10 ways to cut the debt - Fran O'Sullivan unleashes at NZHerald.co.nz with 10 suggestions for debt reduction, just to help focus the government's mind.
This governnment shows no sign of listening or telling the public the truth about our vulnerabilities.
It's much easier to sleepwalk to victory and hope growth delivers us from hell.
Essentially, John Key is taking a punt that growth will solve our immediate debt problems and the ones bearing down on us as the Baby Boomers retire.
Yet the recovery has been slower than everyone expected, because of the debt. And policy hasn't changed much to produce the growth. Relying on China and Australia isn't a solution either.
Something has to change. Or the ratings agencies (or more correctly the Australian government and the Australian bank CEOs) will force us to do it.
Here's a couple of Fran's ideas. Your views? Comments below.
Ramp up GST to 20 per cent. Sure it's regressive - but essential food items could easily be omitted. Introduce a 20 per cent tax rate for small businesses which will encourage them to get into growth mode and employ more people.
Most top state bosses could usefully take a 30 per cent - or more - haircut. The reality is they have all done very well indeed in the payrate states during the past decade.
3 'They had how many staff?' - The Daily Nation in Kenya reports Zimbabwe's central bank governor Gideon Gono has announced plans to sack 74% of the bank's staff. That's 1,600 people. To give you an idea, the Reserve Bank of New Zealand has 230 staff.
They must have been printing their currency by hand.
Gideon is most upset.
"I would like to say it is not one of the easiest tasks as it is going to be one of the largest retrenchments in the history of the country by a single institution,” Dr Gono told a parliamentary committee.
4. Blame Greenspan and Bernanke, not China - FTAlphaville republishes this useful chart below showing trade imblances and an academic paper looking at the long term history of such imbalances and financial crises. The end result is that loose credit is to blame, not the trade imbalances. Quelle Surprise.
In light of the evidence from 140 years of modern economic history, the big international crises are different in that they combine strong credit growth with an environment of low real interest rate (relative to real growth) and tame inflation.
External imbalances could play an additional role, but at a first glance they appear secondary to the role played by credit growth and interest rates.
5. Kicking the can - Felix Salmon at Reuters points out the tax cut extension 'deal' done overnight by Obama and the Republicans is just another attempt by America to 'extend and pretend'.
This is expansionary fiscal policy, alright, but a large chunk of it is concentrated in exactly in those areas — like tax cuts for the rich — which have the lowest multipliers when it comes to kick-starting economic recovery. What the country needs is spending, and this bill instead looks very likely to give us hundreds of billions of dollars of saving.
The unemployment-insurance and payroll-tax aspects of the deal will be welcomed as exactly the kind of stimulus this economy needs: substantially all of them will be spent rather than saved. But the middle- and upper-class tax cuts, paid for by extra borrowing by Treasury, will be used in large part to pay down personal debt. Essentially, we’re replacing private debt with public debt. Just like Ireland! And the political dynamics of taxes — easy to cut, impossible to raise — will remain: this decision essentially kicks the can two years down the road, when we’re going to have exactly the same fight all over again.
6. Another US$1 trillion in losses - Nouriel Roubini has warned via Dealbook that another US$1 trillion in losses are possible for US banks from the utterly broken US housing market. HT Gummy via Top 10.
Mr. Roubini said he was particularly focused on a recent study by Laurie Goodman, a senior managing director of Amherst Securities and a former co-head of fixed income research for UBS. In her October report, “The Housing Crisis — Sizing the Problem, Proposing Solutions,” Ms. Goodman comes to the dark conclusion that more than 11 million borrowers are in danger of losing their homes, or roughly one out of five borrowers.
“That’s a scary number because the previous estimates I saw were in the three to four million range for the next four years” Mr. Roubini said. “Some say these numbers are too pessimistic, but I’ve spoken to experts in the mortgage industry who say these numbers are quite realistic.”
7. Structural imbalances - This McKinsey quarterly paper by Lowel Bryan is a useful read to get a sense of the structural problems in the relations between developed and emerging economies and the potential for big financial shocks.
The conclusion is there is a risk the Euro and US dollar fall 30-50% in a hurry.
What would that do to our economy, or the global economy for that matter? HT Lance Wiggs via blog
Labor can’t be freely traded on a single global market, but capital and commodities can. This dynamic is creating significant tensions in global currency, commodity, and debt markets.As the GDP growth of emerging-market nations continues to out- strip that of the developed world, the pressure on currency values will continue to build. Eventually, the tension must be released, and currency values will readjust.
For all of us, the speed of that adjust- ment makes a big difference. The dollar and euro would need to be devalued by between 30 and 50 percent for financial foreign-exchange rates to reflect the purchasing-power-parity (PPP) exchange rates of emerging-market currencies more closely (and, therefore, for labor of equal quality and productivity to be priced relatively equally across geographies).
8. Another cracking Rolling Stone article - Rolling Stone is the source of some of the best financial journalism around at the moment. We all remember Matt Taibbi's incendiary Vampire Squid article that changed the debate about Goldman Sachs. And the piece that ended General Stanley McChrystal's career.
Now Rolling Stone's Jeff Goodell has written a 7,600 word piece about Don Blankenship, the boss of Massey Energy, a coal miner with an appalling safety record. Blankenship resigned a week after it was published. He is no Peter Whittall. Here's why.
Unless you live in West Virginia, you've probably never heard of Don Blankenship. You might not know that he grew up in the coal fields of West Virginia, received an accounting degree from a local college, and, through a combination of luck, hard work and coldblooded ruthlessness, transformed himself into the embodiment of everything that's wrong with the business and politics of energy in America today — a man who pursues naked self-interest and calls it patriotism, who buys judges like cheap hookers, treats workers like dogs, blasts mountains to get at a few inches of coal and uses his money and influence to ensure that America remains enslaved to the 19th-century idea that burning coal equals progress.
9. Muddling through isn't working - Daniel Gros writes at VoxEu that the various attempts to muddle through the European debt crisis simply aren't working. He suggests a big bang.
The only way out seems to be a big bang; to deal with all the problem cases in one go. The argument against a restructuring of, say, Greek public debt has always been that this would lead to contagion. But contagion is already a fact of life, and it focuses on countries with real problems. Portugal with its combination of high external debt and poor growth prospects looks like Greece.
Spain has the “Irish disease”; a real estate bust that leads to huge losses in the banking system. Every country is different, and some countries (Spain, for example) would under normal circumstances not need a bail out. But these are not normal circumstance, and it is not possible to deal with each country in sequence because each bailout lead the markets to expect the next one.
Only a big bang can resolve the impasse. How should this "big bang" look like? A sudden collective default would of course constitute a "mega Lehman" and would have catastrophic consequences. However, it is entirely possible for the countries in question to make investors an exchange offer while continuing to service their payment obligations. There should thus be no technical default, but simply an offer to bondholders to engage in discussions about debt restructuring accompanied by a concrete exchange offer.
10. Totally funny video about encouraging readers to comment. All not true. We love our readers, but sometimes...
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.