Tuesday's Top 10 with NZ Mint: America (debt) default settings; Albino Kiwi picture; Melbourne's sliding housing market; Greece's Lehman moment; Muppets movie; Dilbert

Tuesday's Top 10 with NZ Mint: America (debt) default settings; Albino Kiwi picture; Melbourne's sliding housing market; Greece's Lehman moment; Muppets movie; Dilbert

Here's my Top 10 links from around the Internet at 1pm  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.

Today's Albino Kiwi pic is as cute as a button.

1. America's debt ceiling - It turns out both sides of politics in America are officially committed to defaulting on US debt.

No one actually believes America will default on August 2, but the political stances are not inspiring.

Here's former Reagan era budget director David Stockman talking about how both sides seem committed to a default.

Europe is facing a Greek inspired financial crisis.

If America were to even threaten or potentially default then all bets are off on financial market stability, or even actual operation.

So why is New Zealand so relaxed about growing its foreign debt by more than NZ$10 billion this year through government bond issues.

Remember, we have foreign debt worth more than 50% of our GDP that has to be refinanced every 90 days.

If financial markets freeze we are bankrupt. Or more correctly, our banks are bankrupt, and because they are too big to fail our government would have to bail them out.

That's why Standard and Poor's views our total foreign debt as public debt. HT Zerohedge.

Here's the detail on the US debt ceiling debacle:

"The real problem is the de facto policy of both parties is default. When the Republicans say no tax increases, they're saying we want the U.S. government to default. Because there isn't enough political will in this country to solve the problem even halfway on spending cuts. When the Democrats say you can't touch Social Security, when you have Obama sponsoring a war budget for defense that is even bigger than Bush, then I say the policy of the White House is default as well...

"That is the question that really needs to be understood better and appraised by the bond market. Both parties are advocating default even as they point the finger at each other."  

2. Melbourne's housing on the slide - Leith van Onselen at Macrobusiness writes about the problems in Melbourne's housing market.

Over the past few months, whilst touring around my home city of Melbourne, two things have stood out like a mullet at the royal wedding:

  1. the large number of homes for sale; and
  2. the large number of homes under construction.

I was particularly surprised yesterday, while on a long drive around inner-Melbourne, by the sheer number of half-finished apartments currently under construction.

3. Private prisons don't work in America - The New York Times details the problems with privately run prisons in Arizona. They cost more to run than the public ones and that's after they cherry pick the easiest, healthiest and cheapest prisoners.

No wonder Bill English is no fan of more prisons. Garth McVicar should have to pay for all these prisons personally.

“There’s a perception that the private sector is always going to do it more efficiently and less costly,” said Russ Van Vleet, a former co-director of the University of Utah Criminal Justice Center. “But there really isn’t much out there that says that’s correct.”

Such has been the case lately in Arizona. Despite a state law stipulating that private prisons must create “cost savings,” the state’s own data indicate that inmates in private prisons can cost as much as $1,600 more per year, while many cost about the same as they do in state-run prisons.

The research, by the Arizona Department of Corrections, also reveals a murky aspect of private prisons that helps them appear less expensive: They often house only relatively healthy inmates.

4. University eduction bubble - Bloomberg reports Chinese students are finding university fees are skyrocketing in America and they're not nearly as prestigious as they're painted.

Also, there's a murky underworld of agents who skim a whole lot on the way through.

How's the education export business doing in New Zealand? Do we have the same problem with agents?

More than 400 agencies licensed by the Chinese government, and many others that aren’t, cater to families eager to see their children gain the prestige of a U.S. degree. For thousands of dollars, agents help fill out applications, ghost-write essays and arrange visas.

These agents also often misrepresent or conceal their U.S. affiliations. They receive payments not only from the families, who even pony up a share of any scholarships awarded to their children, but also from an increasing number of colleges, as well as small operators seeking to profit stateside from the influx of Chinese students.

Eager to mine a newly affluent China, the State University of New York, Tulane University inNew Orleans and scores of other schools are starting to pay agents a commission for each student enrolled -- an incentive that’s banned when recruiting U.S. students.

5. 'High taxes not necessarily bad' - Lane Kenworthy writes the actual evidence shows high taxation doesn't necessariliy handicap an economy.

This may sound heretical to many, but it's worth looking at the evidence. Kenworthy looks at America vs Sweden vs Denmark.

He finds the Vikings have done pretty well vs America in terms of economic growth and income per capita. They're also doing much better than America on income equality and citizen satisfaction. The analysis is well worth a read.

If heavy taxation has harmful economic effects, why have Denmark and Sweden performed similarly to the United States during a period of several decades in which their taxes were much higher than America’s?

6. Huge inventory overhang - The New York Times reports on the millions of US homes now owned by banks that are yet to hit the market.

This global financial crisis is far from over.

Here's one of the reasons why: the balance sheet recession in America is still dragging on its economy. No amount of money printing will fix it.

Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months.

“It remains a heavy weight on the banking system,” said Mark Zandi, the chief economist of Moody’s Analytics. “Housing prices are falling, and they are going to fall some more.”

Over all, economists project that it would take about three years for lenders to sell their backlog of foreclosed homes. As a result, home values nationally could fall 5 percent by the end of 2011, according to Moody’s, and rise only modestly over the following year. Regions that were hardest hit by the housing collapse and recession could take even longer to recover — dealing yet another blow to a still-struggling economy.

7. All Watched Over By Machines Of Loving Grace - BBC documentary maker Adam Curtis has produced this latest documentary on the decline of Britain's economy.

It's controversial. It features the water-powered model of the economy created by Kiwi economist Bill Phillips.

It looks a lot at what happened in the 1960s and 1970s. A wide sweep of history.

There's a funny Rowan Atkinson moment around the 31 minute mark.

8. 'US politics - It's a reality show sponsored by Wall Street.'

Here's Matt Taibbi of 'Vampire Squid' fame.

He's always entertaining.

9. Another Lehman moment - Former IMF economist Simon Johnson uses the L word in a Bloomberg article to describe the Greek crisis. Notice the Greek asset sales...

Sound familiar?

“There may be slipping, sliding into some sort of re- profiling of Greek debt,” Simon Johnson, an economist at the Massachusetts Institute of Technology, told Bloomberg Television’s In the Loop yesterday. “They may be about to face their own special European Lehman moment.”

To avert that possibility, Greek Prime Minister George Papandreou’s Cabinet agreed yesterday to sell stakes in Hellenic Telecommunications Organization SA (HTO) by the end of next month, as well as Public Power Corp SA (PPC), Hellenic Postbank SA, and the country’s ports.

Greece has a “refinancing hole” of 30 billion euros for both 2012 and 2013, according to economist Nouriel Roubini. The nation could restructure by issuing debt with lower interest payments and extend maturities as it’s unlikely the nation will “regain market access for the next five to 10 years,” he said in an interview last week.

10. Totally irrelevant video - There's a new Muppets movie coming.

Here's the trailer. For those wondering, I am a Muppets fan. Beaker is my favourite. Followed by the Swedish chef. I don't like Miss Piggy.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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.

40 Comments

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Americas debt Ceiling

"If financial markets freeze we are bankrupt. Or more correctly, our banks are bankrupt, and because they are too big to fail our government would have to bail them out".

Well actually that's not quite true Bernard, as long we have the printing press available we can print the debt away - the other option the preferred option is to have a national vote and not bail the privately owned banks. Sounds radical but currently all over Europe people are protesting in the streets and hailing the Iceland model.

Very interesting points.

Printing and/or defaulting (same thing really) very valid if brave options.

We would be shut out of global markets for a generation, but...

Not such a bad idea if it gets to that.

cheers

Bernard

Bernard a return to protectionism can be vague while diplomacy is still necessary......but the triggers are nonetheless evident.

did you just say not such a bad idea...?

Perhaps I should have said...."Not such a bad idea if it gets to that."

Would you care to elaborate on that......or at least offer me the dignity of a response.

Sure. If we get into such a pickle that we can't service our debts we face the choices now faced by Ireland, Portugal and Greece. That is being ordered by the IMF, or more likely the Australian government, to completely slash govt spending, increase taxes and sell off assets.

In Iceland the population have voted to default. Ireland and Greece are going with brutal austerity under the jackboots of EU officials.

NZ has a floating currency, which will help. We'll see the reaction in a vastly lower currency, which is a good thing but will create an inflation blowout, higher interest rates and carnage in asset prices...

So it's worth thinking about radical alternatives.

Printing money is one. We could buy back all this debt with a devalued currency and export our way back to freedom. Printing money would keep interest rates low, particularly if we didn't have much inflation.

All a matter of choices. I'd much rather we were in control rather than the IMF or the Australian governmnent or the Peoples Bank of China.

 

cheers

Bernard

Nasty but I agree with you....export what/how btw? 

So many variables, the biggest just think peak oil fossil fuel shortages.   Next export to who? everyone else is going to be broke as well....

I would hope we wont be trading for "paper" but oil n stuff. I give you lamb, you give me fuel. etc

regards

Thank you for a considered response...Im sure omitting to address me was an oversight.

I can only wonder what Bernanke would make of your post Bernard.....oh that's right he would probably concur. 

My apols Christov. Yep for you.

Ben might love the idea. Our creditors and savers here might not.

Interesting though that it's something the powers-that-be are relaxed about when America does it but not so much when the rest of us do it.

It's a last resort sort of thing.

I'd much prefer it to what the Irish and Greeks are doing, particularly the Irish. You could argue it's not the Irish people's fault that their government was stupid enough to guarantee their banks and effectively bail out German, French and British banks.

Now it's happened though, the Irish should default and exit from the Euro.

The Greeks are in their own special world of pain.

If this thing spreads to Spain and Italy then all bets are off.

cheers

Bernard

I don't think anyone in their right mind was ever relaxed aout it Bernard.....the spin machine sold relaxed about it.....the Fed learned to speak relaxed about it....Congress had no choice but to take an overdose of benzodiazepines and join the party.

It in itself is an admission of all options exhausted.....proceed with extreme caution with no possibility of a uturn......therefore to what end...? I believe you..(Bernard) have demonstrated at least half of the plan and mindset required to accompany it. 

More on default

shaping up that way KW John.....and there's that word again...!

Roadhouse

"preferred option.........NOT to bail out the privately owned banks"

Very enticing idea, I would be all for it, but.......hmmmm....who would lose?

According to the proposed new rules by our RBNZ, well, there would be in case of a freeze a 80% or so cut for all depositors, savings accounts, term deposits, you name it. It is WE who are on the hook, the banks would continue trading,  either way, this is the tragic  dilemma between fire and frying pan.

State bail out of banks - we pay via taxes.

No bail out - we don't get the money we thought we have saved. Just lost by their gambling which is called fractional banking.

Nothing new, it happened in the early 30's and again after the currency reform 1948 in Europe.

No No its all wrong ....go back and do it all again.......where's the meat..? not the regurgitated stringy bits...the meat...

Roubini....roubini...houdini....everybodys a wise ass in retrospect.....you just get it out quickly so you look a teller of fortunes  ....

Like the devil cartoon though...really good.

sigh........

Thumbs up for the Devil cartoon from me as well. A picture worth a thousand words. 

#7.  4% economic growth over the next 4 years? Where have I heard that recently? So; Goodhart's Law then - about 37 minutes in...... (but 31 minutes, does indeed, say it all, Bernard!)

#7 depressing, no pollie has a clue, too many black swans out there. Since they can't control the economy they've turned to trying to control the weather. OMG

No black swans. But we do have a white kiwi ! HT Blair for that one.

Ain't it cute, we need something to distract us!

Adam Curtis has done some brilliant documentaries most (if not all) of which are freely available to watch on Youtube.  Especially worth watching are "the Trap" and "power of nightmares".

A few years ago I contacted TVNZ and asked if they would consider airing these documentaries, and they declined stating that they did not think they were "appropriate".

Once you have viewed them you'll understand why.

Watched this BBC doco over the weekend http://www.bbc.co.uk/programmes/b00mq36b

Was quite good also.

Thx, Matt S! An interesting thought from "Nightmare..." America: A land where nothing is believable, but everything is permissable.

a much watch doco

Thanks for posting

Another vote... I remember it as 'the Politics of Fear'  , always wondered why I couldn't find it... thanks.

The video above is actually Part 3 of Adam Curtis' Pandora's Box. Curtis' latest doco's first episode is on You Tube, and focused squarely on Ayn Rand and Alan Greenspan (with a dash of Bill Clinton's Lewinsky gravy thrown in for popular appeal):

http://www.youtube.com/watch?v=xX5jImWRREc

Mildly amooooosing hamrod........Grinding to a halt under the weight of it's own burden..?

ya gotta love those secret service guys though....at least  they didn't come out gunza blazing..no doubt  The President will at least boast a stray hump while in Ireland.

Greece's Finance Minister reveals the government is preparing to halt wage payments and pension payments if it can't get the next tranche of payouts from the EU

"The IMF has made absolutely clear that it cannot disburse (the tranche) if it does not have any guarantee that next year, if necessary, Greece will have (funding) support from the Europeans," Finance Minister George Papaconstantinou told Skai TV's New Files show.

When asked what would happen if Greece does not get the next bailout tranche, the minister said: "The country will halt payments ... Wages, pensions -- all the state's expenses will not be paid."

http://www.reuters.com/article/2011/05/23/us-greece-measures-pm-idUSTRE7...

Buckle up people

OOOh I'm buckled up Bernard...but I'm living in a traffic jam with John n Bill putting Men At Work signs up everywhere.....

Not long now till the ultimate experiment
He's breaking all the rules
He wants to cure all matter of imbalance
In this world of fools

Hey, hey he fumbles for what to say
He loves the world except for all the people

Trying his best to unlock all the secrets
But he's not sure what he's found

Yep  Christov, good analogy.

For no one....PDK....good hunting as always.

t'was you suggested Men at Work.

I once called a catamaran Heckle and Jive

although I think they spelt it Heckyll.

go well       :)

Brinkmanship....you keep paying me or I pull the trigger on the gun at my head.....

Even saying stuff like this will cause panics....he's an idiot....

Every day I wake up and expect a critical card like Greece will have finally fallen and everythign will have frozen up.

regards

Well given the Greece situation, check this out:  http://www.wealthwire.com/news/metals/1182

Denmark...land of the controlled   !

 "All the English people here are shaking their heads in disbelief and say that it is insane. I agree but it is the law. It's becoming impossible to run a business in this country. We are not allowed to do anything anymore. It is the way Denmark is going."

 http://www.telegraph.co.uk/foodanddrink/foodanddrinknews/8533896/Marmite-made-illegal-in-Denmark.html

What do Danish Marmite Police spread on their toast....?

Thankyou fate for booting out Clark otherwise we would also have marmite Police to contend with...

"RECOVERY"

"we're saved"

"it's all over"

 ``There can be no doubt that dairying is the engine that is powering the New Zealand economy.''
The rural sector had kept its chequebook shut for two years but with a second bumper season looming, it was unlikely to remain closed, Mr Bagrie said.

"It's fine to get one good dairy season, when you get a second one, that is going to be a bit of a gamechanger in terms of preparedness to get out there and spend a bit of dosh which is pretty important for the general economy."

Mr Bagrie said New Zealanders were currently only seeing the cost side of high commodity prices as they paid more for petrol and dairy products, but once farmers started to spend the economy would benefit in the second half of the year from the big income gain from dairy payout.....stuff

"Once farmers started to spend".....why would they do that when they face Goofy and mob planning on robbing them blind with extra taxes....and were we not told something about massive debts crushing the dairy sector...debts that need to be paid for and paid down!!!!!

Oh of course....silly me.....it's just Bagrie BS......'BBS'

Hi guys, Im just North of Sacramento, gave the girls a few days at Roseville shopping mall, its huge and impressive and the coffee was good. 

 Houses for sale everywhere so the prices are expected to keep softening. Paying just over the $4 a gallon for gas. Fuel consumption has got to be down so the oil price remaining so high is ominous.  Going for a drive with a local  real estate agent this week will report back after.

 The weather is surprisingly comfortable in the 30's I was expecting high 30's low 40's. My daughter is off to the UK to earn some money I hoped she would come home but she had far better job offers from the Uk. 

 

Greece is in trouble as the Politicians battle it out

http://www.telegraph.co.uk/finance/economics/gilts/8534065/Greece-crisis...

 

 

And ive just started reading this.

 

http://www.spiegel.de/international/business/0,1518,764299,00.html

 

 have a nice day guys.

Enjoy AndrewJ......the coffee's good because you need to be awake to smell it....you certainly are that......

P.S. watch to R.E. agent their a breed of their own regardless of geography.

peek a the bloody sea......tuh.

Spot the anomoll   the anom...spot the odd one out....!

 http://www.economist.com/blogs/dailychart/2011/05/well-being_and_wealth

That's because of me, Wally.

I'm incredibly happy and incredibly poor - it just skewed the stat.

How can Goofy counter the argument that low incomes mean people are better off? He should ask for a pay cut!