Monday's Top 10 with NZ Mint: 'America now in Depression'; Ambrose's European warning; The Midwest's Madoff and his love of bunnies; Welsh rapper's Newport state of mind; Dilbert

Monday's Top 10 with NZ Mint: 'America now in Depression'; Ambrose's European warning; The Midwest's Madoff and his love of bunnies; Welsh rapper's Newport state of mind; Dilbert

Here's my Top 10 links from around the Internet at 11 am in association with NZ Mint.

I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

I'll pop the extras into the comment stream. See all previous Top 10s here.

Keep an eye on the growing unrest in China.

1. 'America is already in a depression' - Ed Harrison argues at Credit Writedowns that America is already in a depression.

Once this debt deal dust has settled, it will become clear that US$3 trillion of spending cuts will drive America's economy deeper into recession/depression.

It will also fail to solve the longer term structural issues facing America's finances, including its ageing and fattening workforce.

This is all about excessive debt in the developed world.

This was built up over the last decade to offset the gutting of the middle classes as wealth was transferred upwards and jobs transferred to the emerging markets.

There are some major structural problems in America that will not be solved by a few last minute deals in Congress.

Here's Harrison:

The issue was and still is overconsumption i.e. levels of consumption supported only by increase in debt levels and not by future earnings. This is the core of our problem – debt.

  1. A depression was borne out of high levels of private sector debt, the unsustainability of which became apparent after a financial crisis.
  2. The effects of this depression have been lessened by economic stimulus and government support.
  3. Government intervention led to a reduction in asset price declines, which led to stock market increases, which led to asset price stabilization and more stock market increases and eventually to asset price increases. This has led to a false sense that green shoots are leading to a sustainable recovery.
  4. In reality, the problems of high debt levels in the private sector and an undercapitalized financial system are still lurking, waiting for the government to withdraw its economic support to become realized
  5. Because large scale government deficit spending is politically impossible, expect a second economic dip within three to four years at the latest.

2. Here's why America's deficit is out of control - Clusterstock points out in this great infographic below Bush era tax cuts, the bank bailouts and three expensive wars are responsible for America's budget deficits forever.

President Obama's administration has been blamed for reckless spending that has put America into its debt hole. But in reality, much of that spending emanates from policies of President Bush, according to the Center on Budget and Policy Priorities.

They argue that Iraq, Afghanistan, and the Bush tax cuts (along with the economic downturn) are what is driving the U.S. deficit, not stimulus spending. The CBPP focuses on lower to middle income issues and may be directly involved with the Democratic Party.

3. Chinese demand for gold to exceed India's this year - The BusinessTimes reports the world's biggest gold producer, Goldcorp, saying Chinese demand is set to exceed India's this year.

'Three or four years ago, there was no one who would have expected Chinese physical demand for gold to surpass India,' said Mr Jeannes in a telephone interview from New York.

'Now it looks like that could happen as early as the end of this year. And that's while Indian demand is increasing.'

While global demand for gold is advancing over concerns about financial turmoil in the US and some European countries, consumers in China are buying larger amounts of the metal as an inflation hedge, said Mr Jeannes.

4. A MidWestern Madoff - BusinessWeek tells a fascinating story of a Madoff-style Ponzi schemer in the Midwest who had a thing for Playboy bunnies...

Sigh... Is this what the home of capitalism aspires to?

In the summer of 2007, Timothy S. Durham decided to throw himself a party for his 45th birthday. The CEO of a leveraged buyout shop in Indianapolis, Durham claimed to have made millions. He had also developed a penchant for the young, fun, and nubile, partying in Los Angeles and Miami and on his yacht in the Caribbean. In L.A., he owned National Lampoon, or what was left of it, and had been going to parties at the Playboy Mansion.

At the time, Durham told Daniel S. Comiskey, an Indianapolis Monthly reporter, he just wanted to bring “a little of that ‘magic’ to Indianapolis.” That magic meant 30 glamour models, flown in from Los Angeles, picked up at the airport in exotic cars from Durham’s collection, put up in a hotel, and paid standard modeling day rates, according to model Megan Hauserman. “He said it was a Playboy-themed party, so we should wear what we would typically wear to the mansion,” she says. The standard uniform there is lingerie and heels.

More than 1,000 people showed up at his 30,000-square-foot mansion in Fortville, an exurb of Indianapolis. Members of the Indianapolis Colts arrived, as did Kato Kaelin. Durham dressed like Hugh Hefner, in a plush robe. When he went to blow out the candles, his cake was frosted with his likeness in the center of a million-dollar bill.

In many respects, Durham embodied the bounties—and hubris—of the pre-recession age. The money seemed limitless, the parties got bigger, and Durham’s profile rose. He let CNBC film him on his $7 million yacht, the Obsidian. He took the local ABC (DIS) affiliate on a tour of his home, showing off the television screens hidden behind the mirrors in his bathroom.

“They asked me how I justify all this,” he told the magazine. “They asked me if I consider myself a materialist. I said, ‘Without a doubt! Look around.’ Does anyone not consider himself a materialist? Who doesn’t want this stuff? This country is founded on the idea of people wanting stuff.”

5. 'It's the demography stupid' - Chrystia Freeland at Reuters does a nice job of putting the generational context around the debt crises in America and Europe.

The heart of the problem is arithmetical: The post-World War II social welfare state, created at a moment when the baby boom was still gestating, is built on a generational Ponzi scheme. As life expectancy increases and fertility declines, that population pyramid is being inverted — and in some countries, that is causing the entire economy to topple.

That’s true in Greece and Spain, where the young are taking to the streets partly because state pension commitments have become so heavy they are suffocating the economy and depriving the seniors’ grandchildren of any chance of a job. Likewise in the United States, where, notwithstanding the national self-image as a laissez-faire land that has eschewed Europe’s lavish social safety net, the budget battle is really a fight about the old: Programs for the elderly constitute almost half of non-interest government spending, about $1.6 trillion in 2010, of a $3.3 trillion total. That figure will swell as the baby boomers retire.

According to a paper by political economist Nicholas Eberstadt, who has done extensive research on the issue, “costs associated with population aging are estimated to account for about half the public-debt run-up of the O.E.C.D. economies over the past 20 years.”

6. Spain's 15-M movement - This is a great piece (translated) from El Pais reporting on Spain's 15-M (May 15) movement of rolling sit-down protests by Los Indignados.

It's about the youth (where unemployment is over 40%) protesting at the intransigence of their parents' generation.

Civil society has woken up. Or rather, a part of it. With the youngest at the front. With those who want to be the present and not the future. The millions of unemployed, those who can’t find work, those whose mortgages are on the verge of foreclosure, those who have to fear the arrival of each new bill, those affected by the cuts, disappointed by the poverty of political discourse, outraged by the electoral marketing. A well-educated generation, grown-up in the shadow of San Google, has decided to take to the streets.

7. Weak US GDP - In all the kerfuffle around the debt ceiling, a lot of people missed the woeful US GDP figures out on Friday. It's raised fresh talk of QE III.

Here's Bloomberg:

Gross domestic product expanded at a 1.3 percent annual rate in the second quarter, after a 0.4 percent pace in the prior period, the worst six months since the recovery began in June 2009, Commerce Department figures showed yesterday. Economists said the slowdown leaves the recovery susceptible to being knocked off course by shocks at home or abroad.

“We are in a fairly risky situation,” said Nariman Behravesh, chief economist at IHS Inc. in Lexington, Massachusetts, the only firm polled by Bloomberg News to correctly forecast last quarter’s figure. “Growth is weak and there are some possible problems out there: our own fiscal situation, Europe’s debt crisis, and there is always a risk that oil prices could shoot up.”

The slow recovery left GDP at $13.27 trillion in the second quarter, below the $13.33 trillion peak of the fourth quarter of 2007, after a recession that was about 25 percent deeper than previously reported. That puts pressure on Federal Reserve policy makers to explore additional steps to boost the economy, including another round of bond purchases.

8. Growing Chinese fury - This story about the Chinese anger around the recent train crash is also gathering steam. The Chinese government imposed a news blackout over the weekend.

It shows the growing tensions inside the country, driven at least partly by inflation.

Here's the New York Times:

After days of growing public fury over last month’shigh-speed train crash and the government’s reaction, Chinese authorities have enacted a virtual news blackout on the disaster except for positive stories or information officially released by the government.

The sudden order from the Communist Party’s publicity department, handed down late Friday, forced newspaper editors to frantically tear up pages of their Saturday editions, replacing investigative articles and commentaries about the accident that killed 40 people in easternChina with cartoons or unrelated features. Major Internet portals removed links to news reports or videos related to the crash near Wenzhou in Zhejiang Province, in which 192 people were also hurt.

The government’s decision to muzzle the media followed a remarkable week of outpouring of online criticism of the government over the July 23 accident. For many in China, the train wreck has crystallized concerns about whether the government is sacrificing people’s lives and safety in pursuit of breakneck development and is cloaking its failures  in secrecy or propaganda.

Outraged by the order to silence themselves,  dozens of journalists insisted in online messages that given the many troubling questions that remain,  it was almost impossible to swallow the directives. The government has placed huge  importance on the construction of high-speed rail, mounting the world’s largest  public works project. 

“Tonight, hundreds of papers are replacing their pages; thousands of reporters are having their stories retracted; tens of thousands of ghosts cannot  rest in peace; hundreds of millions of  truths are being covered up,” the editor of Southern Metropolis Daily, a privately owned newspaper based in Guangzhou, wrote Friday. “This country is being humiliated by numerous evil hands.” His post, on the site Sina Weibo, was later deleted.

“My story will not go to print today and looks like I will have to write something else,” wrote another journalist. “I’d rather leave the page blank with one word — ‘speechless.’ ”

9. Problems in Europe still - Ambrose Evans Pritchard does a great job at The Telegraph of highlighting the issues still bubbling in Europe and how the US federal crisis might spread to the states.

There are historical cases of respectable growth following fiscal contractions, not least in Britain after 1932 and 1993, but the scale of cuts needed to close America’s double-digit deficit at a stroke is of an entirely different order. You do not have to be Keynesian to see the dangers of such a violent shock in an over-leveraged economy.

If cuts continued into September without either side blinking, the knock-on effects might rapidly set off serial defaults by states and an implosion of the $2.5 trillion municipal bond market. The bankruptcy saga of Jefferson County, Alabama, is a foretaste.

Maryland, Virginia, South Carolina, New Mexico and Tennessee have all be put on negative watch. California has had to raise an emergency $5bn loan. Nevada is spending half its tax-take on debt service costs, and Michigan 40pc. These states are hanging on by their fingernails.

Yet if disaster is an outside risk in America, it is an odds-on likelihood in Europe. It is already clear that the latest EU summit deal is too little to stop a spiralling crisis in confidence, let alone acknowledge that North and South have diverged too far to share a currency union. Spanish and Italian yields are back to pre-summit danger levels, and might fly out of control at any moment unless a lender-of-last resort steps in to guarantee the market.

10. Totally Welsh Rap spoof of Empire State of Mind - Made me laugh quite a few times.

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.

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#1 and #2, I wonder if we'll ever look back and frown at the "Key-era tax cuts"?

How is this government not destroying the middle class and redistributing a little bit down and a hell of lot up?

Give em hell shagpile...bloody rich prics...it's the poor what made this country what it is!

Not reading you here Wolly? Are you saying it's th poor who made NZ a s**thole and are driving our brightest and best across the ditch? Or do you have some delusion that NZ is a great country?

Well it hasn't been, not since Muldoon. And before you say "why don't you just f-off then shagpile" the answer is I'm trying Wolly, I'm trying, just waiting for the right job in the right place that can be sold to "her indoors"...

Greed-addled elderly baby-boomer Wolly will never admit that shifting the burden of supporting the nation onto everyone other than the wealthy is a bad idea.

Wolly likes to think of himself as belonging to the "elite", so, everytime anyone criticises tax cuts for the rich, he believes he has to go on the offensive, because they are criticising him.

What Wolly doesn't realise as he cravenly and stupidly cheerleads for the likes of John Key and other smirking gougers is that those people are laughing uproariously at the naive wannabe Richy Richs such as Wolly.

Wolly isn't a real person Malarkey. The posts come from a virus that wormed it's way into the Interest.co.nz server about 4 years ago and has so far resisted attempts to remove it. No actual human could maintain that level of self congratulatory cynicism for so long without imploding.

17% of households pay 97% of net taxation.    Is that fair?

 

or to put it another way: "oh geez mum don't make me share! it's mine and i don't want to share! it's not fair!"

 

suck it up goNZo. you've had the rub of the green. pay extra.i do.  i bet you'd rather pay more tax than try to live on a benefit.

the question should be "where are the f**king jobs?" cos the vast majority of beneficiaries would love to work but can't find employment. 

i admit that from the late 80's until the early oughts in believed in neolib economics, but in the last decade i've seen more and more evidence that the policies are idealistic, and are having the net effect of damaging our economy. its time for a change.

a change to what ?    more borrowing,more tax,more abortions,more family conferences ?

Key 70%  Goff 9%  people have worked out who knows how to run the show

There is no difference!

Its a one party state full of administrators. The wanna be administrators play musical chairs and when popular opinion shifts to the other side which is the same side nothing much changes - the AGENDA marches on regardless...

Coloured banners give an illusion of difference...

in all honesty gonzo i'll most lilkely be voting 3rd party this time.....i've voted red and blue before and they are both just bribing voters with my tax money.

the greens, crazily enough, have proposed a cgt, pushing farmers into the ets earlier, cutting MP's perks.....so far they're more sensible than key and goff, who plainly rate re-election highest...plus those two have had plenty of opportunities in the last 3 decades to reject or re-evaluate neolib policies and said nothing so they can both ox right off.

The people haven't figured out who knows how to run the show, just like in America they've figured out who will give them the most benefits in the short term, to hell with the consequences, so long as I get mine now!

If anything people have cottoned onto the failure of democracy, that they can vote in the party that offers the most money/assistance/benefits for themselves.

30 years after the dawn of Globalisation craptrap, the boomerang finally arrives in the western economies....Western economist and politicians (egged on by their Bankers and industralist) happily tout globalisation as the Holy Grail of world trade and development....except they never told their populace of the down side .

Western economies are supposed to keep growing into the Jet-son age while helping the poor countries develop by buying everything they can produce.....well...the poor countries did progress except the western world never got into the Jet-son age. (The Jets-on age is where everybody flies around in space age gear and stuff and do things like "enjoy" life )

Economists (and politicians) forgot to tell their people that Globalistaion only work for tradeable (or mobile) goods and services.....those services and labour that cannot be sold overseas get stuck in second place forever....

Roger Kerr is not incorrect when he suggest that the minimum wage law is killing our youth and our economy by extension...wait till China gets into the diary and beef act, not to mention the Apple and fruit growing business....it's a matter of time.

 

Yes....and no, yes as it shouldnt be redicued and no in that they should be paying more....

regards

And who are those 17% - sure as hell aren't the rich, not in the USA and not in NZ.

There is such thing as balance. At this risk of being lynched on this site:

TAXATION IS A WONDERFUL THING AND I DON'T MIND PAYING MY SHARE.

It's how we define "share" that we all differ I suspect.

I think majority of the 17% are middle-class PAYE, not the wealthiest. The rich employ tax accountants and lawyers to find loopholes.

Since those on the Rich List increased their aggregate wealth by 18% in the last year, I don't think they are losing too much to tax.  That is the sort of increase that the middle classes can only dream of. 

& remember that without a CGT, that increase will in most cases never be taxable.

Cheers to all.  

Absolute rubbish.  If you actually looked at the figures you'd see that the "97%" is actually out of 154.5 - it's NOT a percentage.  A percentage is by definition out of 100.  97 out of 154.5 is 63%.

Also keep in mind that it doesn't include GST of which the poorer pay a bigger percentage of their income on AND - saying 3% of households pay 63% of the tax is meaningless unless you also identify how much of the income they get.  If they earned 63% of the income and payed 63% of the tax so what?

 

Finally it's dawning to the western world that there is no more places to hide their indulgences...you can only paper your cracks with so much green paper and then they all fall apart in the end....and the Chinese finally realise that it's REALLY A CON....that green paper is worth only green paper !!!

Western consumers had a whole lot of deleveraging to do and meantime baby boomers will stick it to their grandkids as long as possible....Goodbye NZ Super !!

FYI from a friend working as a Business Journalist in China:

The Communist Party is struggling to control the public reaction to the crash of two fast trains a week ago. Social media is playing a big part as the public vents its anger with official incompetence, covering up and insensitivity. I think that even before the crash the Chinese public was probably more restless than it has been in decades. The crash has been a flame, not a spark, igniting an explosion of what the Chinese call minfen — public wrath.

The press, which can be much more independent than foreigners imagine, has been joining in, saying the crash shouldn’t have happened and the rescue work was incompetent. Led by the papers, which are the gutsiest part of the media, reporters and columnists have just about implied cover-up by demanding the real reason for the crash, rather than what the government has said (a lightning strike). The authorities blamed technology, but it is obvious that people are responsible for technology. There is widespread disbelief of the casualty figure (about 40). Basically, many people doubt anything that the government says. The premier, Wen Jiabao, is the usual front man who represents the government’s soft face in these situations. For a few years now people have increasingly seen him as a performer (calling him the emperor of acting), and this case he appeared at the crash scene late. People did not believe his excuse of illness (because he had been reported meeting dignitaries earlier in the week).

And this has been going on now for a week.

In China, the seventh day after a death is the day of memorial. The government could only expect a new wave of bad coverage today, Saturday.

Hardly knowing what to do, it appears to have suddenly demanded late last night that papers not report on the crash. Across the country, editors have chosen not to quickly shuffle new copy into the space that the crash report would have appeared in, but instead to leave the space blank — deafening silence that tells readers that the press have been gagged on the very subject that everyone wants to know most about.

Leaving it blank is a cool idea..."no we didnt report it as you said".....you didnt say anything about putting something else in......mind you that probably wouldnt stop a lead bullet....

regards

Here's Slate on the US$5 trillion coin idea. HT Brendan via email

One option is coin seigniorage—aka, the "really-huge-coin workaround." The United States has a statutory limit on the amount of paper money in circulation, but no such limit on coins. The Treasury secretary has the authority to mint certain coins of any denomination, with no need for the value of the metal to equal the value of the coin. (It gets a bit technical.) But the idea is that Secretary Timothy Geithner could order the Mint to make a, say, $5 trillion coin. It could then use the coin to buy back and extinguish debt from the Fed, pushing the country back under the ceiling. Or it could deposit it, and the Fed could counteract the inflation by selling government debt.

http://www.slate.com/id/2300428/

 

The emporer has no clothes, when the solutions are these sorts of manipulations you know the how the wheelers and dealers became the smartest guys in the room and the real economy has become irrelavent to these people.

The U.S. has not had a Treasury since 1921. (41 Stat. Ch.214 pg. 654)

 

The UN has financed the operations of the United States government for over 50 years and now owns every man, women and child in America. The UN also holds all of the Land in America in Fee Simple. 

 

 

 

all together now...

Llanfairpwllgwyngyllgogerychwyrndrobwllllantysiliogogogoch

White House Debt Deal ( ht zerohedge)

Thankfully whenever a fool speaks in Parliament, what they say is recorded and remains public record...not so in the land of the liars...

"In 2006, there was a vote in the United States Senate over raising the debt ceiling. Senator Obama took the high ground. He voted against the increase. Amazingly, he violated one of his career-long principles, namely, don't leave a paper trail. This time, he rose to the occasion. He rose to speak.

We cannot be sure exactly what he said. This is because the "Congressional Record" allows every member to edit his words retroactively before the words are published. In this era of unrestricted pornography, The "Congressional Record" remains the last bastion of airbrushing"

http://www.marketoracle.co.uk/Article29587.html

and  JK would give away anything to do a deal with these people....&^%$$ me.

haha - our hollow men must wish they could do that to Hansard.