Here's my Top 10 links from around the Internet at 4 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.
Cartoons galore today on the debt ceiling. And how's this for an idea? Could America sell its gold stock pile to pay the interest on the debt that has reached its ceiling? Or maybe it could sell its milk powder stockpile...?
1. And the euro is falling - The Euro contagion problem is getting worse, with further falls in the Euro ahead of Thursday's crisis meeting.
This is the next step in the global debt crunch.
There is too much debt in the developed world.
At some stage there has to be either inflation and/or a restructure.
Either is ugly and will restrain growth.
Has John Key and the government really taken that into account?
Here's the latest via Bloomberg:
The common currency dropped against the yen, ending a three-day gain, after European Central Bank President Jean- Claude Trichet reiterated that the ECB won’t accept as collateral bonds from a nation that defaults. The Swiss franc climbed to a record against the euro and dollar as demand increased for safer assets.
2. Europe's contagion problem - Simon Johnson writes at Bloomberg in detail about Europe's contagion problem.
The outlook is bleak.
Here's Johnson, who is an MIT economics professor and former IMF chief economist:
There are three types of contagion in a financial crisis, when the potential collapse of a firm, bank or country threatens to spiral out of control. The European Union today has all three.
The first type is purely psychological -- the panic of herd behavior. The second comes from thinking through the real effects that a collapse would have, as the potential spillovers dawn on people. The third, and most devastating, emerges when smart investors realize that their assumptions -- based on the pronouncements of policy makers -- are all wrong and need to be tossed overboard.
The Germans now want to end the moral hazard of lending to weak euro-zone governments and banks, thus encouraging the belief that richer and better-run countries will provide the necessary support to prevent creditor losses. The trouble is, if you think that the problems are deeper, and that countries with independent fiscal policies can’t co-exist with a common currency, then Germany and other fiscally conservative nations will have to bail out their weaker neighbors again.
Exiting the moral hazard trade is a good idea. But there is no transition plan -- just a series of improvisations, gut reactions and continual renegotiations. There isn’t yet anything close to the political will to definitively end things with a comprehensive solution that tells you who will restructure and who will get unlimited bailouts. This contagion will spread, until senior euro-zone leadership decides -- once and for all -- who is to be saved and on what terms.
3. Masters of financial repression - Paul Krugman wonders why Italian bond yields (5.8%) are much higher than Japanese bond yields (1.1%) even though they have similarly dire public debt outooks.
Here Noahopinion explains why. The Japanese are masters of financial repression - the art of forcing interest rates lower to punish savers and inflate away massive debt.
Today I asked several Japanese economists why Japanese government bond yields are so low when Japanese government debt is so high. Their answers were pretty much in agreement.It comes down to three things: 1) financial repression, 2) home bias, and 3) dysfunctional equity markets.Although many of Japan's legendary bureaucratic ministries have dramatically weakened in power and prestige since the 1980s, the Ministry of Finance (MOF) is still extremely powerful. Japan's financial system, like many financial systems in Asia, is dominated by large banks. In order to finance the government's huge deficits, the MOF puts pressure on the big banks to buy lots and lots and lots of Japanese government bonds (JGBs).This holds JGB interest rates down to very low levels. It also reduces deposit rates on Japanese households' savings accounts to zero, since the big banks need to maintain their spreads. So households see JGBs as fairly attractive investments compared to savings accounts. This is less of a factor these days, since Japanese net household saving is actually quite low now, but one professor I spoke with told me that households have apparently been shifting money from savings accounts to bonds.This is the same kind of financial repression that Michael Pettis has talked about with regards to China. Ultra-low interest rates on household savings act as a stealth tax on households. In China this stealth tax has apparently been used to pay off non-performing loans at big banks; in Japan, it is going to fund government spending.
Appetite for bullion as a safe storage of value increased, as investors feared that the stalemate in negotiations over U.S. deficit plan could lead to a default, which might wreak havoc in globalmarkets and send the world's top economy back to recession. Adding to worries about the economic growth, U.S. consumer confidence hit a near 2-1/2-year low in early July and manufacturing output stalled in June.
"The political uncertainties in the United States and Europe will be an ongoing theme and safe-haven demand will continue," said Natalie Robertson, a commodities analyst at ANZ.
5. They'll fudge it - Hopes the Republicans and Democrats could agree a 'grand bargain' to reduce America's budget deficit by US$4 trillion are fading fast.
Reuters reports it looks like they'll fudge it a the last minute with a more limited deal.
Or not.
The Tea Party Republicans seem determined to blow up the world.
The idea could be a tough sell in the Republican-led House where it has been greeted coolly by conservative Tea Party activists.
Obama had set a weekend deadline for an action plan from the lawmakers and said he might call them back for further White House talks. But there were no meetings over the weekend. As of Sunday evening, no talks were planned for Monday.
6. Look what we've found here - WSJ's David Enrich goes through the European bank stress test results and finds quite a few whiffy loans.
An awful lot.
Friday's test results shed light on another potential problem for Europe's banks: huge piles of residential mortgages, small-business loans, corporate debt, and commercial real-estate loans to institutions and individuals from ailing countries. As those economies struggle, the odds of rising defaults grow.
Banks tend to be holding far greater quantities of those commercial and retail loans than they are of sovereign debt, according to a Wall Street Journal analysis of disclosures accompanying the stress tests. France's banks appear to be the most exposed.
As of Dec. 31, its four largest banks—BNP Paribas SA, Crédit Agricole SA, BPCE Group and Société Générale SA—were holding a total of nearly €300 billion ($425 billion) in loans and other debt issued to institutions and individuals in Portugal, Ireland, Italy, Greece and Spain, the countries that are among Europe's most troubled. That's largely a result of some of the French banks having big retail- and commercial-banking operations in Greece, Italy and Spain.
The French banks' portfolios of commercial and retail loans in those countries dwarf their holdings of sovereign debt. For example, the four banks have a total of about €51 billion of loans to Spanish customers, according to the Journal's analysis. That compares with about €15 billion of Spanish sovereign debt, according to a separate analysis of stress-test data for the Journal by research firm SNL Financial. In Greece, whose economy is in a tailspin, the French banks have €33 billion of various types of loans, more than three times their sovereign-debt holdings.
It's a similar story in Germany. The dozen German banks that disclosed their stress-test results were exposed to €174 billion of commercial and retail loans to Greek, Irish, Italian and Spanish borrowers as of Dec. 31. They are holding an additional €70 billion of sovereign debt issued by those countries, according to SNL.
7.' Let them eat cake' - Slate's David Sirota points to 10 moments where America's richest show how out of touch they have become.
They include birthday parties costing more than US$5 million, bar mitzvahs costing a million dollars, a hedge fund manager who left an ATM receipt showing US$99 mln in his cheque account, the New York Times Style section article on how no one could live on less than US$500,000 a year and Goldman Sachs' new HQ costing US$2 billion.
"Let them eat cake" is a phrase composed of four simple, easy-to-remember words, which is probably why it became so emblematic of a larger set of ideas. "Suck it up and cope" is a phrase made up of five similarly simple and memorable words, which is why it may well replace "Let them eat cake" in the annals of history.
Yes, "Suck it up and cope" -- that is what billionaire Charlie Munger said that the unemployed, the homeless and the impoverished should do as their lives are torn apart by the recession.
Of course, had he said the same thing about bailed-out banks, his now-infamous line might have just seemed like the innocuous rant of a crotchety geezer who might be a little too zealous about old-school principles. But no, Munger made the remark during a 2010speech to University of Michigan students in which he first lauded bankers as people who "saved your civilization" and then urged all Americans to bow down and "thank god" that the bailouts preserved the financial industry's profits.
8. Greed, excess and America's gaping class divide - Matt Taibbi is on form again in this Rolling Stone blog post about how the rich in America feel about themselves and the rest.
All of this is a testament to the amazing (and rapidly expanding) cultural divide that exists in this country, where the poor and the rich seldom cross paths at all, and the rich, in particular, simply have no concept what being broke and poor really means. It is true that if you make $300,000 in America, you won't feel like you're so very rich once you get finished paying your taxes, your mortgage, your medical bills and so on.
For this reason, a lot of people who make that kind of money believe they are the modern middle class: house in the burbs, a car, a kid in college, a trip to Europe once a year, what's the big deal? They'd be right, were it not for the relative comparison -- for the fact that out there, in that thin little ithsmus between the Upper East Side and Beverly Hills, things are so f***ed that public school teachers and garbagemen making $60k with benefits are being targeted with pitchfork-bearing mobs as paragons of greed and excess.
Wealth, in places outside Manhattan, southern California, northern Virginia and a few other locales, is rapidly becoming defined as belonging to anyone who has any form of job security at all. Any kind of retirement plan, or better-than-minimum health coverage, is also increasingly looked at as an upper-class affectation.
9. Could America liquidate assets to pay the Chinese? - One rumour doing the rounds is that America could use various stockpiles of commodities to help service its debts if its debt ceiling is not raised. One idea that scares a few people in New Zealand is the idea that America could dump its stockpile of milk powder to pay the Chinese.
Here's the Washington Post on the nutty things the Americans have thought of doing.
Obama administration officials have been privately exploring with major banks and foreign investors whether the government could devise a way to avoid a severe disruption in financial markets if the federal debt ceiling is not raised, according to several people familiar with the matter.
Officials have discussed suspending some domestic spending in order to make payments to investors in U.S. bonds — which include domestic pension funds and the Chinese government — and possibly selling assets such as gold.
10. Totally Shine meets Slim Dusty - Here's another one of these unlikely stars uncovered stories ( a la Paul Potts and Susan Boyle).
This one is a 16 year old Australian and his name is Chooka...
Danni Minogue is slightly irritating...
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