Here's my Top 10 links from around the Internet at 10 to 11 am in association with NZ Mint.
I'll pop the extras into the comment stream. See all previous Top 10s here.
I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.
My apologies for no Top 10s on Thursday and Friday. AMI blew us out, I'm afraid. Deadlline missed. Today's Dilbert resonated in a large way.
1. 'We need a new reserve currency' - Bloomberg reports Nobel laureate Joseph Stiglitz has called for a new global reserve currency.
He makes some good points about the subsidy now America has with the US dollar.
The factoid from Fitch about US government debt hitting 100% of GDP next year is startling too.
The debate around America's debt ceiling is well worth watching.
Should we have a debt ceiling here?
A “global system” is needed to replace the dollar as a reserve currency and help avoid a weakening of U.S. credit quality, said Stiglitz, a professor at Columbia University in New York. The dollar fell to an almost 15-month low against the euro last week, and the U.S. trade deficit widened more than forecast in January to the highest level in seven months.
“By taking off the burden of any single country, we don’t have to have trade deficits,” Stiglitz said in an interview in Bretton Woods, New Hampshire. “Things would be much worse if it were not the case that Europe was having even more of a problem, but winning a negative beauty pageant is not the way to create a strong economy.” The ratio of general government debt, including state and local governments, to gross domestic product is projected to climb to 100 percent in 2012, the most of any country with an AAA ranking, Fitch Ratings said last week.
The existing monetary system means “there’s a very good risk of an extended period of low growth, inflationary bias, instability,” Stiglitz said. It’s “a system that’s fundamentally unfair because it means that poor countries are lending to the U.S. at close to zero interest rates.”
2. Risk for NZ banks? - The Sunday Star Times' Rob Stock has an excellent story about the risks New Zealand banks face from damages claims from companies who have lost money to employees who use internet banking to steal. It seems banks' cross checking processes aren't good enough to stop it without a bunch of extra safeguards..
Here's Stock writing about a law suit ASB faces:
The suit against ASB will centre on claims that businesses are not informed by the banks that they do not cross-check the names of payees with account numbers before allowing internet transactions, allowing dishonest employees with internet banking authority to create payment instructions that look like they are legitimate, but instead channel money into accounts they control so they can steal it.
And this one from Rob on a bankers' 'Ye Gods' moment on the issue.
The partners from Daniel Overton & Goulding were, "like most people", totally unaware bank systems did not perform automatic payee name-account number cross-checks, so they sent a small payment between accounts entering false names.
"We did some dummy runs to make small payments between some of the partners by putting in wrong names and we moved money around the system. It demonstrated the flaw straight away," Waugh said.
"When you as a corporate send a payment instruction and you put down the name of the person you want to pay and account number, what do you think is happening? You think that somehow they are cross referencing the name and the account number.
"What they do not tell you is that they are going to disregard the name of the payee on 100% of instructions."
3. The problem with tax havens - Rob Stock also has an excellent piece on tax havens and questions the role of family trusts in New Zealand. I agree with him. They should be restricted at least or banned as a last resort.
People may not even realise they live in a tax haven. Anyone with a bit of nous can reel off a dozen or so island tax havens – Jersey, the Caymans, the Bahamas, Guernsey... but Shaxson is fairly sure they won't name the islands of Manhattan and Great Britain.
He could include New Zealand for that matter, because international "asset planning" firms are making a play of selling New Zealand trusts as safe places to stash wealth discreetly.
This country offers first world stability, and a low-visibility trust system where foreigners can hold assets away from the eyes of their own tax authorities.
New Zealand is mentioned alongside Delaware companies, Barbados trusts, private foundations in Netherlands Antilles and tax-exempt companies in the Cayman Islands. Shaxson said New Zealand was one of the unrecognised tax havens of the world, but that its profile is about to rise.
4. Our budget blowout - Brian Gaynor wrote an excellent column at NZHerald on Saturday on the fiscal crisis now facing New Zealand. He does a great job of showing how revenues have fallen while costs have risen under this National-led government.
The Government is living well beyond its means, as reflected by its negative operating balance before gains and losses (obegal) of $9.2 billion for the first eight months of the June 2011 year.
The Crown has been forced to borrow to finance this deficit and additional capital expenditure. Thus, Crown debt has ballooned from $49.4 billion to $63.4 billion - an increase of $269 million a week, or $38 million a day, in the year ended February 2011. This is not sustainable and our political leaders have to make a number of difficult decisions, particularly as the latest Christchurch earthquake will cost the Government an estimated $5 billion to $10 billion.
Governments have two choices when they experience a huge blowout in the fiscal deficit and gross debt: they can either deal with the situation by making dramatic spending cuts or let the situation drift and leave the country at the mercy of credit rating agencies and foreign lenders.
New Zealand governments, whether National or Labour, find it very difficult to make the tough decisions because well over 50 per cent of the electorate receive some kind of direct or indirect government assistance. In addition there is a huge resistance to asset sales and public-private partnerships because of our experiences two decades ago.
5. Europe's debt problem - The problem with debt anywhere is that it acts as a hand brake on growth. As soon as you get out of recession higher interest rates make it much harder to really get motoring because interest payments rise.
That's exactly the case in Europe. The Observer reports on a consultant's prediction that the European Central Bank's drive to increase interest rates will simply push Ireland and Greece into default. And Spain is vulnerable too...
Here's the report:
Analysis by City consultancy Fathom, obtained exclusively by the Observer, shows that because the interest rates on the bailouts provided to Greece and Ireland track the European Central Bank's lending rate, a series of increases could push these countries – and Portugal – into default.
"If the ECB continues to tighten policy, the impact is clear: default is more or less inevitable," says Fathom director Danny Gabay. "Greece is clearly on an unsustainable path."
Fathom also warns that Spain remains vulnerable, despite Madrid insisting last week that its economy is much healthier than Portugal's and its debts are much more manageable. Spanish banks must roll over debts worth more than 5% of GDP this year, and more than 9% in 2012, in addition to the government's financing needs. A two-point increase in the interest Madrid pays in the bond markets – much of which could come from the ECB, even without a further loss of confidence from bond investors – would, on Fathom's calculations, force Spain into a fiscal crisis.
Much of the debt that has driven the three countries over the brink is owed to banks in the core, and Gabay argues that the insistence on being repaid every penny of that is driving the countries of the single currency apart, instead of holding them together.
"This is a banking crisis, not a sovereign crisis, and the German bankers are in the front line," he says.
6. Crisis at Leighton Holdings - One of Australia's biggest contruction and development firms faces a financial crisis. Leighton Holdings is likely to announce a A$800 million capital raising form its German parent later today after investments in the Middle East imploded.
Any NZ fallout? From what I can see they're not doing much here.
Here's more from Adele Ferguson at BusinessDay:
As of last night the company was planning to raise up to $800 million, at a rough price of about $22.50, or a discount of more than 20 per cent. The method was still not clear and the board was still to approve.
Based on a $1 billion write-down, it would need to change its profit guidance for 2011 from a profit of $480 million to a loss of more than $500 million.
As of last week, the company lost a great deal of credibility when it was forced to go into a trading halt after failing to come to an agreement at last Tuesday's board meeting on the size of the write-downs, the size of a capital-raising, and how to wrap it up as part of a ''wiping the slate clean'' exercise.
7. How America works now - The S&P 500 is now almost perfectly correlated with food stamp usage in America.
As corporates offshore jobs and sack staff, their profits and share prices grow. Meanwhile the sacked workers have to ask for food stamps. This is just not sustainable. Thanks to Zerohedge for the chart.
Cities, counties and school districts had been sheltered from the full impact of the slump because of the lag between when realty prices fluctuate and values are reset by local tax assessors. That’s changing as property rolls are adjusted to the current market and residents push to have their taxes cut.
Local officials are now facing the consequences. Property- tax revenue dropped in the last three months of 2010 at the fastest pace since home prices slipped from their peak more than four years ago, the Census Bureau said yesterday. The decline may continue as values fall further, adding strains to cash- strapped localities that already fired workers, halted projects and cut spending because of the recession that began in 2007.
9. Rebel forces are gathering - Jon Hilsenrath at the WSJ is a closely watched correspondent on US Federal Reserve policies and politics. Here he interviews St Louis Federal Reserve President and FOMC (rate policy setting committee) member James Bullard.
The Fed governor, one of many, says he wants to pull out of the money printing programme early and will argue for it at the FOMC meeting later this month.
How long before the Fed stops printing and starts putting up rates? And what will that do to the global (and US) economy when it does?
James Bullard, president of the Federal Reserve Bank of St. Louis, said he would push at the Fed’s upcoming two-day policy meeting (April 26 and April 27) to reduce the central bank’s quantitative easing program by $100 billion, but held out little hope of being successful.
“We got a stronger economy and we got higher inflation and higher inflation expectations than we expected at the time,” he said. “The logical thing to do is to pull back.”
But Mr. Bullard isn’t looking to a quick or aggressive shift to tight monetary policy. He said he wants to reduce the asset purchase program, slowly taper it off and then watch to see how the economy performs before taking further steps. “We’d be pulling back just a little bit from where we said we were going to be based on economic developments. Then we would be on pause for a little while,” he said.
10. Totally prescient video (mockumentary actually) of computer gaming from 1970s Britain. Funny in a car crash sort of way.
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