Here's my Top 10 links from around the Internet at 4pm 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.
I will not welcome any mention of this wedding thing in Britain. Interest .co.nz is officially a wedding-free zone this week. Or at least we don't take it seriously. Reference Number 10
He is essentially saying the world needs to end its obsession with growth.
This is fascinating as it comes from someone nowhere near the Green spectrum.
He is saying that the jump in the oil price and the price of many foods indicates we are nearing the limits of expansion and growth.
It it today's must read I reckon.
The implications are profound. It means it we have to find a new way to run our economy that uses a lot less physical resoures.
Here's a taste:
The problems of compounding growth in the face of fi nite resources are not easily understood by optimistic, short-term-oriented, and relatively innumerate humans (especially the political variety). The fact is that no compound growth is sustainable. If we maintain our desperate focus on growth, we will run out of everything and crash. We must substitute qualitative growth for quantitative growth.
But Mrs. Market is helping, and right now she is sending us the Mother of all price signals. The prices of all important commodities except oil declined for 100 years until 2002, by an average of 70%. From 2002 until now, this entire decline was erased by a bigger price surge than occurred during World War II.
Statistically, most commodities are now so far away from their former downward trend that it makes it very probable that the old trend has changed – that there is in fact a Paradigm Shift – perhaps the most important economic event since the Industrial Revolution.
2. The Greek bond run continues - The Telegraph reports the bond run in Greece is still on, reminding us all that the European Sovereign Debt crisis is far from over despite everyone looking elsewhere in recent days. Greece's budget deficit was also worse than expected.
The European Central Bank, the only major potential buyer, "won't buy whilst [some eurozone countries such as Germany] continue to speak and put pressure on Greece to restructure", said one trader.
A restructure of Greek debt, cutting the interest rates and lengthening the terms of the loans, would represent an effective default as the debt would be worth much less.
Jose Manuel Gonzalez-Paramo, a member of the European Central Bank's executive board, warned on Tuesday a restructure would be "quite likely more devastating" than the fall of investment bank Lehman Brothers, which precipitated the financial crisis.
Portugal also disappointed as Eurostat confirmed the figure out from Lisbon at the weekend that upped its 2010 deficit to 9.1pc of GDP, compared to earlier estimates it hwill it its 7.3pc target for the year.
3. How the bursting of the US housing bubble broke the middle class - Charles Hugh Smith has an excellent analysis of fresh data on US wealth. HT AndrewJ in today's 90 at 9.
His conclusion:
The bursting of the housing bubble wiped out half of the net worth of the Mortgaged Middle Class.
So here's the reality: over one-fourth of all households are at or below the poverty line: 28 million. The top 10%--10.5 million households--own the vast majority of the financial assets ($45 trillion)(the total owned by non-profits is not broken out).
The next 10% own 10% of this wealth, or about $4 trillion. So the top 21 million households own 93% of all financial wealth. The Great Middle Class between those in poverty and the top 20%--56 million households-- owns about $2.7 trillion in financial wealth, and the millions with mortgages own an additional $1 trillion in home equity. That comes to $3.7 trillion, or about 6.5% of the total household net worth.
Back at the top of the bubble, the middle class had $6 trillion more assets on the books. Considering the Mortgaged Middle Class now owns about $6 trillion in net assets, then the bursting of the housing bubble caused their net worth to drop by 50%.
4. Positive money.org - At the risk of encouraging Iain Parker (sorry Iain we all love you really we do), here's a British website that thinks about an alternative monetary system that controls the monetary supply and effectively destroys modern banking. Worth a look, although utterly radical.HT Tom via email.
Here's a taste.
Firstly, the rules governing banking are changed so that banks can no longer create bank deposits (the numbers in your bank account). Currently these deposits are considered a liability of the bank to the customer – after the reform, they would be classified as real money and only the Bank of England would be able to increase the total quantity of them.
The Bank of England would then take over the role of creating the new money that the economy requires each year to run smoothly, in line with inflation targets set by the government. In order to meet these targets, the decision on how much or little money needs to be created would be taken by the Monetary Policy Committee. To maintain international credibility and avoid ‘economic electioneering’, the MPC would be completely separate and insulated from any kind of political control or influence – in other words, the elected government would not be able to specify the quantity of money that should be created.
The Monetary Policy Committee would decide how much money needs to be created in order to meet the inflation targets by analysing the economy as a whole – not the spending needs of the government, nor the needs of the banking sector.
5. The Fed is just like Charles Ponzi - It's hard to believe this given who's saying it, but the world's biggest bond fund manager (PIMCO) reckons the US Federal Reserve is effectively running a Ponzi scheme that is about to blow up in everybody's faces when its second round of Quanttitative Easing ends on June 30.
Have a read of this to get a sense of how the world's biggest central bank has lost the confidence of many serious players:
Just as Charles Ponzi needed donuts to turn back a suspicious crowd of investors, the Fed needs “donuts” in order to fill the bellies of the literally millions of investors worldwide who worry about the alarmingly large U.S. budget deficit and the impact that the U.S. debt dilemma could have on their Treasury holdings. Investors are no doubt worried they may have bought into an unsustainable scheme: the creation of a scourge of debt so large that the Fed itself has had to purchase the debt to keep the game going.
All that the Fed has had to do thus far to keep the game going is press the “on” button to its virtual printing press, crediting the account of the U.S. Treasury. In the process, the Fed has kept the demand for U.S. Treasuries high, perhaps deceptively so, attracting with its redolence many classes of buyers, including households, banks, pension funds, insurance companies and foreign investors. Their collective buying has created what we believe to be a profit illusion with many investors mistakenly believing they can continuously reap profits from perpetually falling bond yields and rising bond prices, just as they have had opportunity to do over the past 30 years, amid the great secular bull market for Treasuries and the bond market more generally.
For many reasons, this “duration tailwind” for Treasuries can’t last, particularly because the United States has reached the Keynesian Endpoint, where the last balance sheet has been tapped. In addition, with inflation expectations rising in the context of low levels of initial jobless claims, and with Federal Reserve officials themselves expressing reluctance to go beyond Quantitative Easing (QE) II, the Fed’s Treasury buying is expected to end in June, leaving others to carry the Treasury’s heavy load.
The Federal Reserve’s colossal bond purchases therefore will likely, to the chagrin of millions of unsuspecting Treasury bond investors, be one of the markers for the latter stages of the bull market for Treasuries. For now, however, the Fed’s purchases have the sweet aroma of freshly baked jelly donuts and many a Treasury bond investor has been drawn to their savory, sugary, scrumptious taste.
6. The carry trade is back - Bloomberg reports the carry trade is back. Our currency at near record highs certainly suggests it is. And what drives such a trade?
Low interest rates in places like Japan and America and higher interest rates here make it possible for speculators and/or investors to borrow at virtually zero% in America and Japan and then lend to New Zealanders at higher interest rates and 'carry' the difference as profit.
A currency rise increases the profit in the trade. This is only possible when a country has no capital or currency controls...
Cue New Zealand.
Brazil is trying to reintroduce controls. Why aren't we?
Here's the details.
Investing the proceeds of yen loans in New Zealand dollar- denominated assets has earned 305 percent in annual terms since March 17, the day before the Group of Seven sold yen to help Japan stem currency appreciation, data compiled by Bloomberg show. Borrowing in U.S. dollars to invest in Brazil reais has earned 104 percent. The UBS V24 Carry Index rose as high as 510 this month from 486.5 on March 18, the lowest level since 2009.The carry trade is reviving as traders step up bets that the Fed and BOJ will keep their target interest rates at record lows for longer than was anticipated earlier this year. While stronger currencies may help emerging economies damp inflation, they also risk curbing exports they rely on to bolster growth.
“The dollar and the yen are good funding currencies as their rates are so low now,” said Tsutomu Soma, a bond and currency dealer at Okasan Securities Co. in Tokyo. “The yen is especially ideal as Japan won’t be able to raise rates for a very long period of time due to the earthquake and the intervention may prevent the yen from rising.”
Brazil will soon adopt more measures to contain the appreciation of the real, Trade Minister Fernando Pimentel said on April 20. He accused the U.S. of “deliberately” devaluing the dollar to boost the economy.
Since October, the government has increased taxes on foreign capital inflows, stepped up dollar purchases in the spot and futures market and imposed reserve requirements for banks betting against the dollar to contain the rally of the real.
7. How Goldman Sachs created the Food Crisis - Foreign Policy's Frederick Kaufman blames Goldman Sachs for rising food prices. Grantham says above it's supply and demand. Kaufman says it's the bankers.
Who to believe?
Here's Kaufman.
The result of Wall Street's venture into grain and feed and livestock has been a shock to the global food production and delivery system. Not only does the world's food supply have to contend with constricted supply and increased demand for real grain, but investment bankers have engineered an artificial upward pull on the price of grain futures. The result: Imaginary wheat dominates the price of real wheat, as speculators (traditionally one-fifth of the market) now outnumber bona-fide hedgers four-to-one.
Today, bankers and traders sit at the top of the food chain -- the carnivores of the system, devouring everyone and everything below. Near the bottom toils the farmer. For him, the rising price of grain should have been a windfall, but speculation has also created spikes in everything the farmer must buy to grow his grain -- from seed to fertilizer to diesel fuel. At the very bottom lies the consumer. The average American, who spends roughly 8 to 12 percent of her weekly paycheck on food, did not immediately feel the crunch of rising costs. But for the roughly 2-billion people across the world who spend more than 50 percent of their income on food, the effects have been staggering: 250 million people joined the ranks of the hungry in 2008, bringing the total of the world's "food insecure" to a peak of 1 billion -- a number never seen before.
8. The drums are beating - Leith van Onselen writes at Macrobusiness about a growing push to end negative gearing for property investors in Australia. Bring it on, I say. Here too please.
In early March, Fairfax’s Michael McNamara wrote a fantastic article arguing to abolish negative gearing. This article was followed up in Fairfax by Saul Eslake, who lambasted Australia’s dysfunctional tax system, especially negative gearing, for the way in which it encourages borrowing and speculating, and penalises working and saving.
Then last week, Fairfax published an article noting that the Gillard Government is considering curbing negative gearing for multiple investment property holdings.
And on Monday, Saul Eslake followed up last month’s piece with another fantastic article in Fairfax once again attacking Australia’s tax system for encouraging borrowing and speculating, and penalising working and saving. Mr Eslake’s article covers a number of aspects relating to Australia’s tax system, and I encourage you to read it for yourself.
9. Repeat - This spoof piece in The Onion on Ben Bernanke is worth repeating today.
The U.S. economy ceased to function this week after unexpected existential remarks by Federal Reserve chairman Ben Bernanke shocked Americans into realizing that money is, in fact, just a meaningless and intangible social construct.
"Though raising interest rates is unlikely at the moment, the Fed will of course act appropriately if we…if we…" said Bernanke, who then paused for a moment, looked down at his prepared statement, and shook his head in utter disbelief. "You know what? It doesn't matter. None of this—this so-called 'money'—really matters at all."
"It's just an illusion," a wide-eyed Bernanke added as he removed bills from his wallet and slowly spread them out before him. "Just look at it: Meaningless pieces of paper with numbers printed on them. Worthless."
10. Totally taking the piss video from Jon Stewart about that wedding.
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