Here's my Top 10 links from around the Internet at 2 pm 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.
Gummy bears galore below.
1. The great tax for debt switch - Former US Labor Secretary Robert Reich is onto something here when he talks about how rich Americans have switched from paying taxes to lending money to the government.
How is it different here?
The income tax cuts in New Zealand last year have seen some people save more in bank accounts.
We are now seeing those funds being used by banks to buy government bonds.
The irony is the rich are getting 2.5% after tax from their banks (if they're lucky) and the banks are getting 5.5% from the government in interest on the government bonds.
Sounds like someone is making money out of this and it's not either the government or the richer savers.
But in America the rich lend to the government directly.
Forty years ago, wealthy Americans financed the U.S.government mainly through their tax payments. Today wealthy Americans finance the government mainly by lending it money.While foreigners own most of our national debt, over 40 percent is owned by Americans – mostly the very wealthy.
This great switch by the super rich – from paying the government taxes to lending the government money — has gone almost unnoticed.
You hear a lot of worries about foreigners dumping Treasuries if they lose confidence in the dollar because of our future budget deficits. What you hear less about are these super-rich Americans, who are just as likely to abandon Treasuries if spooked by future budget deficits.
The great irony is if America’s super rich financed the U.S. government the way they used to – by paying taxes rather than lending the government money – that long-term budget deficit would be far lower. This is why a tax increase on the super rich must be part of any budget agreement. Otherwise the great switch by the super rich will make the income and wealth gap far wider.
Worse yet, average working Americans who can least afford it will either lose the services they depend on, or end up with a tax burden they cannot bear.
2. How Gupta misled McKinsey - Bloomberg reports in depth on the scandal of Rajat Gupta (the insider trading director of Goldman Sachs) and how the shock is now spreading at McKinsey, where he was the boss for so long.
At McKinsey, a firm known for keeping secrets, Gupta harbored a few of his own. As the managing director and then as senior partner of McKinsey for four more years before he retired, he ran his own consulting business on the side -- a violation of McKinsey rules.
He and Anil Kumar, a former McKinsey partner who last year pleaded guilty to passing confidential information to Rajaratnam, set up their own consulting company. Gupta also independently advised Genpact Ltd. (G), a Gurgaon, India-based firm that manages business processes for other companies. That work, too, broke McKinsey’s rules.
“It has always been a clear violation of our values and professional standards for any firm member to provide consulting or advisory services outside of McKinsey for personal monetary gain,” says Michael Stewart, a McKinsey partner and director of communications.
3. Vancouver more expensive than New York - Canada's housing bubble is something to behold and the action in Vancouver is worth watching, in part because it is very Auckland-like, with plenty of fresh Chinese money flooding in.
Vancouver’s Royal Pacific Realty had such a surge of business during the first two weeks of February that agents and assistants worked day and night shifts to find homes for Chinese buyers visiting during the Lunar New Year. “It was unprecedented,” said Royal Pacific Chief Executive Officer David Choi. “I called them sleepwalkers.”
Sales of detached homes, townhouses and condominiums in metropolitan Vancouver jumped 70 percent in February from January, to 3,097 units from 1,819, and were up 25 percent from a year earlier, according to the Real Estate Board of Greater Vancouver. In March, sales climbed 32 percent from February, to just shy of a record for the month of 4,371 transactions set in 2004. Sales increased by 80 percent from two years ago.
Buyers from mainland China are leading a wave of Asian investment in Vancouver real estate as China tries to damp property speculation at home. Good schools, a marine climate and the large, established Asian community as a result of Canada’s liberal immigration policy make Vancouver attractive, said Cathy Gong, who moved from Shanghai to the Shaughnessy neighborhood on Vancouver’s Westside about three years ago.
“The schools here are the best and there are a lot of Chinese people here,” said Gong, whose son is in sixth grade at Shaughnessy Elementary School. Eastern Canada wasn’t an option because “I cannot bear cold weather,” Gong said. Vancouver has the second-largest immigrant Chinese population in Canada after Toronto.
4. How Wall St is killing America - Time has an interesting piece looking at new company formation and where all the talent goes in America.
A new study from the Kauffman Foundation, a Kansas City, Mo.–based nonprofit that researches and funds entrepreneurship, has found that over the past several decades, the growth in size and importance of the financial sector has run in tandem with lower — not higher — rates of new-business formation. In the 1980s, when Wall Street really took off, the number of new firms created fell, and in the 1990s, it plateaued and has been stagnant ever since.
Basically, the facts show the opposite of what Wall Street would have us believe. A number of factors explain that, but one of the most important, argue the study's authors, is that the financial sector is sucking talent and entrepreneurial energy from more socially beneficial sectors of the economy.
5. Targeting the big four - Bloomberg reports Britain's anti-trust regulator is targeting the big four accounting firms, KPMG, Ernst & Young, PwC and Deloitte, on charges they distort industry practices and block rivals.
Different here? We'll wait a while before our Commerce Commission does anything.
“We have been concerned for some time about the extent of competition in this market, with only four large players and substantial barriers to entry,” the London-based watchdog’s executive director, Clive Maxwell, said in the statement.
The investigation may result in a referral of the case to Britain’s Competition Commission, which for the first time could force changes to the industry. Dominance by the four firms, which audit 99 of the 100 largest U.K. companies, has been under review by the OFT since 2002, while a U.K. government committee investigating the financial crisis called for a probe of the industry in March.
6. Watch out for China - The Australian reports Australia's new Treasury Secretary Martin Parkinson has used his first speech to warn about the risks of a Chinese meltdown.
TREASURY chief Martin Parkinson has raised the spectre of China's boom turning to bust - with devastating consequences for Australia - if Beijing persists with manipulating its exchange rate and spreading inflation throughout the world.
Dr Parkinson said moves by the Chinese to clamp down on domestic inflation could slash demand for Australia's minerals.
"China's approach to monetary policy is a source of global inflationary pressure, but more directly for us raises the risk of action (by the Chinese authorities) to restrain inflationary pressures in ways that impact on our export sectors," the Treasury secretary said.
By keeping its exchange rate closely linked to the US dollar, Dr Parkinson said China was importing US monetary policy, which was designed for an economy with double-digit unemployment, almost no inflation and weak demand. By contrast, emerging countries such as China have strong GDP growth, little spare capacity and rising incomes.
"Unfortunately, the path being pursued is dislocative for the rest of the world, including Australia," he said.
"Volatility in China's future growth path cannot be ruled out."
7. Red flags for markets - Barry Ritholz has spotted two big red flags suggesting global markets are about to take a big tumble.
We note that the Russell 2000 broke its 50-day moving average today and the Hang Seng pierced its 200-day last night. We also just posted the S&P 500 looks ready to test its 50-day.
These two indices are key indicators of the global markets’ propensity to take risk. We’ve written several times of how the Hang Seng is the indicator species for global risk.
Sure we can bounce as it looks like traders are getting pretty negative and short here and you know how the market will punish when too many are offside, but the Russell and Hang Seng may be signaling a coming summer of risk aversion and capital preservation. No time to be a hero, in our opinion.
8. Too much debt - This IMF chart below shows how global public debt has risen and fallen vs GDP since 1880. It's not a good look. Click on the chart for a bigger version. Suffice to say our debt levels are late 1920s like.
9. GDP or Happiness? - Nobel prize winning economist Joe Stiglitz talks below about why GDP may not be the best measurement for economic and social progress.
The US spends 16% of GDP on health but has worse health care outcomes than France, he points out. This is counted as a GDP positive.
The US has ten times the number of prisoners than other industrialised countries, which is also counted as a positive for GDP.
Any different here?
10. Totally Gummy Bears video - Especially for Gummy Bear Hero
Space invaders with Gummy Bears. Game Over. Lunchtime.
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