Here's my Top 10 links from around the Internet at 6 pm 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.
America is broke. So is Europe. China seems to be the only hope. Yet its housing market is a bubble waiting to burst.
How is this all going to end?
1. Brokeback mountain - America's debate over the debt ceiling is getting ugly.
But Americans have been here before.
39 times.
That's how often it has been raised before and under both Presidents.
It still beggars belief that the world's biggest economy is less than three weeks away from defaulting and the politicians are still a long way apart.
The bond markets still believe a deal will be reached.
The result is unthinkable if America defaults.
2. Greenspan blames the young - BusinessInsider reports Former Federal Reserve Chairman Allan Greenspan says the youth of today are getting paid less because they aren't as skilled as their baby boomer parents.
He suggests America simply import the skilled staff.
Baby boomers are being replaced by groups of young workers who have regrettably scored rather poorly in international educational match-ups over the last two decades. The average income of U.S. households headed by 25-year-olds and younger has been declining relative to the average income of the baby boomer population.
This is a reasonably good indication that the productivity of the younger part of our workforce is declining relative to the level of productivity achieved by the retiring baby boomers. This raises some major concerns about the productive skills of our future U.S. labor force.
2. So what might it look like? - Robert Peston at the BBC takes a stab at what contagion from a Greek default might look like. It's not pretty, although he does detail some solutions.
The worst case chain reaction from Greek default, whether orderly or disorderly, would probably go like this: a heightened perceived risk of default by the other two bailed-out nations, Ireland and Greece; an increase in expected losses for banks exposed to the financially over-stretched troika of Greece, Ireland and Portugal; a potentially devastating funding or liquidity crisis for banks if providers of wholesale finance decide to shun eurozone banks; a potentially devastating funding or liquidity crisis for Italy and Spain, if lenders decide to shun those economies regarded as next most at risk; default by Italy and/or Spain, sparking losses for banks and a new credit crunch that tips the global economy back into recession or worse.
These are massive, real dominoes that are wobbling and could fall at any time. But they don't have to tumble: the eurozone has the ability to insert dampeners, buffers and defences so that, as and when Greece defaults, the reverberations are uncomfortable rather than calamitous.
3. China warns the US - The NYTimes points out the country with the most to lose from a US default is China. Now it's warning the Americans to do the right thing.
On Thursday, Ben S. Bernanke, the chairman of the Federal Reserve, repeated a warning that a “huge financial calamity” would occur if President Obama and the Republicans could not agree on a budget deal that allowed the debt ceiling to be raised.
The authorities in Beijing added their voice of concern Thursday, though in more muted terms.
“We hope that the U.S. government adopts responsible policies and measures to guarantee the interests of investors,” Hong Lei, a foreign ministry spokesman, said in response to questions about the Moody’s report.
4. Break up the big banks - Washington writes at The Big Picture that the Big US Banks need to be broken up before they drag down the global economy.
Too right
Here's the thinking.
Now, Greece, Ireland, Portugal, Spain, Italy and many other European countries – as well as the U.S. and Japan – are facing serious debt crises. We are no longer wealthy enough to keep bailing out the bloated banks.
Indeed, the top independent experts say that the biggest banks are insolvent (see this, for example), as they have been many times before. By failing to break up the giant banks, the government will keep taking emergency measures (see this and this) to try to cover up their insolvency. But those measures drain the life blood out of the real economy.
And by failing to break them up, the government is guaranteeing that they will take crazily risky bets again and again, and the government will wrack up more and more debt bailing them out in the future.
5. It's official - Economists Christian Dreger and Yanqun Zhang have looked at the data and conclude there is a bubble in house prices in China.
For a while now, analysts have been arguing there is a bubble in China’s property market. Using records from 35 major cities this column finds evidence of a housing bubble. It compares house prices to cointegrated fundamentals and finds that property in China is in general overvalued by around 20% – and even more so in the boom towns.
6. An ugly polarisation - Bloomberg reports the debt ceiling debate is being complicated by the increasing polarisation of US politics. The rhetoric from both sides suggests they'll never agree to a debt ceiling increase before August 2.
As President Barack Obama works for a bipartisan deal to raise the government’s debt ceiling, both the Republicans wanting to replace him and Democrats seeking the best way to re-elect him have emerged as obstacles.
Republican presidential candidates and Democratic activists alike are using the debate to sharpen their political messages and appeal to core supporters, complicating efforts to reach a compromise to avert a possible government default on Aug. 2.
“Both parties are set in concrete on what they believe their base has to have, and that makes it very difficult to find any middle ground,” said former Representative Charles Stenholm, a Texas Democrat who focused on reining in the federal budget as a lawmaker.
7. The return of the gold standard - Ambrose Evans Pritchard writes at The Telegraph about the rise in the gold price to record highs as confidence in the euro and US dollar as reserve currencies ebbs away amid debt crises and money printing.
"It is very scary: the flight to gold is accelerating at a faster and faster speed," said Peter Hambro, chairman of Britain's biggest pure gold listing Petropavlovsk.
"One of the big US banks texted me today to say that if QE3 actually happens, we could see gold at $5,000 and silver at $1,000. I feel terribly sorry for anybody on fixed incomes tied to a fiat currency because they are not going to be able to buy things with that paper money."
China, Russia, Brazil, India, the Mid-East petro-powers have diversified their $7 trillion reserves into euros over the last decade to limit dollar exposure. As Europe's monetary union itself faces an existential crisis, there is no other safe-haven currency able to absorb the flows. The Swiss franc, Canada's loonie, the Aussie, and Korea's won are too small.
"There is no depth of market in these other currencies, so gold is the obvious play," said Neil Mellor from BNY Mellon.
He then talks about a 'new gold standard'.
Step by step, the world is edging towards a revived Gold Standard as it becomes clearer that Japan and the West have reached debt saturation. World Bank chief Robert Zoellick said it was time to "consider employing gold as an international reference point." The Swiss parliament is to hold hearings on a parallel "Gold Franc". Utah has recognised gold as legal tender for tax payments.
A new Gold Standard would probably be based on a variant of the 'Bancor' proposed by Keynes in the late 1940s. This was a basket of 30 commodities intended to be less deflationary than pure gold, which had compounded in the Great Depression. The idea was revived by China's central bank chief Zhou Xiaochuan two years ago as a way of curbing the "credit-based" excess.
Mr Bernanke himself was grilled by Congress this week on the role of gold. Why do people by gold? "As protection against of what we call tail risks: really, really bad outcomes," he replied.
Indeed.
8. Guaranteed to fail - Jon Stewart interviews the author of a book called Guaranteed to Fail about the fall of Fannie Mae and Freddie Mac.
Matthew Richardson likens America's economic collapse to the aftermath caused by a battle between Godzilla and King Kong in downtown Tokyo.
9. Totally Clarke and Dawe - They do their thing on the latest Greek crisis.
10. Totally all about the debt ceiling with Jon Stewart.
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