Here's my Top 10 links from around the Internet at 3 pm 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.
Jon Stewart (Top 10) made me laugh today.
1. The Fed is divided - The three dissenters to the Fed's decision last week are now talking.
There hasn't been this much dissent since 1992.
The more they talk, the more the stock market worries about whether it will get the QE III it is baying for.
All this does is serve to highlight the deep divisions in Amercia's policy making elite and the lack of action.
Obama and the Fed are flailing. The Europeans can't get their act together. No wonder gold is almost at US$1,800/oz.
America is truly stuffed. Europe too.
Here's Reuters reporting on the Dallas Fed's Richard Fisher:
"I believe what is restraining our economy is not monetary policy but fiscal misfeasance in Washington," Fisher said in remarks prepared for delivery to a community forum in Midland, Texas.
U.S. "fiscal authorities" must address the U.S. debt and deficit problems or risk encouraging businesses to move business overseas in search of regimes that provide more certainty.
Businesses "simply cannot budget or manage for the uncertainty of fiscal and regulatory policy," he said. "Monetary policy cannot substitute for what you must get on with doing," he added, addressing lawmakers directly. "Get on with your job."
2. The Bernanke Put - Here's Fisher again via Bloomberg worrying the 'Greenspan Put' (where Alan Greenspan cut interest rates to ensure stocks never collapsed) is turning into the 'Bernanke Put'.
Remember, this guy Fisher is on the Federal Open Markets Committee and is a colleague of Bernanke. Extraordinary.
“My long-standing belief is that the Federal Reserve should never enact such asymmetric policies to protect stock market traders and investors,” Fisher said today in Midland, Texas.
“I was also concerned that just by tweaking the language the way the committee did, our action might be interpreted as encouraging the view that there is an FOMC so-called ‘Bernanke put’ that would be too easily activated in response to a reversal in the financial markets,” Fisher told a group of area community officials and business leaders today
3. Food prices and civil unrest - Wired reports on the latest research with this chart showing problems in the past and to come.
When food shortages and rising prices drive people to desperation, social unrest soon follows. It’s as true today as it was in 18th-century France. According to a new analysis of food prices and unrest, the 2008 global food riots and ongoing Arab Spring may be a preview of what’s coming.
“When you have food prices peak, you have all these riots. But look under the peaks, at the background trend. That’s increasing quite rapidly, too,” said Yaneer Bar-Yam, president of the New England Complex Systems Institute. “In one to two years, the background trend runs into the place where all hell breaks loose.”
FAO Price Index at current prices (black curve) and corrected for inflation (blue curve) between January 2004 and May 2011. Red dashed lines signify the beginning dates of food riots and unrest in North Africa and the Middle East. Black and blue horizontal lines represent the current-price and inflation-adjusted food price thresholds for riots. Bar-Yam et al/arXiv
4. 'A Tobin tax is a good idea' - Economist Mark Thoma writes via Reuters that he likes the idea of a Tobin Tax (Financial Transactions or Robin Hood tax) that now back on the drawing board after this week's Euro summit between Merkel and Sarkozy.
So is a financial transactions tax a highly distortionary, costly tax? The answer is no. The tax would discourage short-term speculative activity, but much of this activity provides little social value. It pushes money around among winners and losers, and traders like it for that reason, but if this activity is discouraged through taxation it would have little effect on long-term investment decisions by firms. For example, one thing this would discourage is high frequency computer trading to exploit minute differences in prices. Does it really matter for long-term investment if these differences persist for a few seconds or minutes more?
In fact, there’s even an argument that this tax will improve the efficiency of financial markets. The late economist James Tobin, the originator of the tax, argued that speculative activity causes harmful fluctuations in financial markets. For example, pursuit of speculative gains can cause firms to increase leverage, and if a financial crisis hits it can be very disruptive to the economy when firm are forced to unwind that leverage quickly.
5. Last place aversion - The Economist reports on why the poor don't always want to tax the very rich. The poor still have aspirations, it seems. HT Rob via email.
Instead of opposing redistribution because people expect to make it to the top of the economic ladder, the authors of the new paper argue that people don’t like to be at the bottom. One paradoxical consequence of this “last-place aversion” is that some poor people may be vociferously opposed to the kinds of policies that would actually raise their own income a bit but that might also push those who are poorer than them into comparable or higher positions. The authors ran a series of experiments where students were randomly allotted sums of money, separated by $1, and informed about the “income distribution” that resulted. They were then given another $2, which they could give either to the person directly above or below them in the distribution.
In keeping with the notion of “last-place aversion”, the people who were a spot away from the bottom were the most likely to give the money to the person above them: rewarding the “rich” but ensuring that someone remained poorer than themselves. Those not at risk of becoming the poorest did not seem to mind falling a notch in the distribution of income nearly as much. This idea is backed up by survey data from America collected by Pew, a polling company: those who earned just a bit more than the minimum wage were the most resistant to increasing it.
Poverty may be miserable. But being able to feel a bit better-off than someone else makes it a bit more bearable.
6. US house prices still over valued - The WSJ reports Zillow saying many housing areas in America remain over valued relative to incomes and to what price to income multiples have done in the past.
It suggests 2.9 times income is a 'normal' multiple. New Zealand house prices are still 4.7 times household income, which is above the long term average of 3.0 and above the pre-2000 average of 2.5, Reserve Bank figures show. HT Hugh via email.
There's also a useful tool on house price over and under valuation in the US.
Here's the WSJ:
The analysis underscores a broader point: While the nation's housing markets largely fell and rose together during the housing boom and bust, they aren't likely to hit bottom and begin recovery at the same time or pace. The Zillow analysis shows that many markets still appear to be overvalued.
For the U.S. as a whole, home prices were around 2.9 times incomes from 1985 to 2000. But during the housing boom, values increased at a much faster rate than incomes. The price-to-income ratio peaked at around 5.1 in 2005. Home prices have since fallen so that on average, nationally, prices are around 3.3 times incomes, or about 14% above the historical trend.
7. In defence of the PIGS - Ambrose Evans-Pritchard has an excellent column at The Telegraph on the European crisis. He thinks the Germans are just as much to blame as the Club Med.
The emptiness of the summit – coupled with Sarkozy’s deliciously absurd theatrics – tells us all we need to know. Neither Merkel nor Sarkozy seem capable of rising to the occasion. Europe is drifting towards its existential crisis.
The ECB can hold the line for now by purchasing €20bn of Spanish and Italian bonds each week. But once the ECB nears €150bn or so, the markets will brace for the next crisis.
Italy alone has to raise or roll-over €68bn by the end of September. You can be sure that a great number of investors will take advantage of ECB intervention between now and then to lighten their holdings, and switch the risk to eurozone taxpayers. The ECB may have to buy at least €100bn of Italian bonds alone by late September to cap the 10-year yield at 5pc.
The German claim that Euroland’s crisis is caused by Club Med profligacy is intellectual chutzpa. None of us should give this self-serving argument any credence.
The problem is deep and structural. These countries were thrown together into monetary union by high-handed politicians before there was any meaningful convergence of productivity, growth patterns, wage bargaining, inflation proclivities, legal systems, or sensitivity to interest rates. The Maastricht rules targeted one variable (debt) but missed all the others.
The damage was compounded by the ECB. It ran a loose monetary policy in the early Noughties, breaching its own M3 and inflation targets year after year, in order to help Germany when Germany was in trouble (for cyclical reasons, obviously)
This greatly aggravated the credit bubbles in Ireland and the South. There are no innocents in this story. All countries share blame. Germany is a sinner in all kinds of ways, not least because it seems to think it can lock in a permanent structural trade surplus, and then order others to stop running deficits.
A whistleblower claims that over the past two decades, the agency has destroyed records of thousands of investigations, whitewashing the files of some of the nation's worst financial criminals.Many of the destroyed files involved companies and individuals who would later play prominent roles in the economic meltdown of 2008. Two MUIs involving con artist Bernie Madoff vanished. So did a 2002 inquiry into financial fraud at Lehman Brothers, as well as a 2005 case of insider trading at the same soon-to-be-bankrupt bank. A 2009 preliminary investigation of insider trading by Goldman Sachs was deleted, along with records for at least three cases involving the infamous hedge fund SAC Capital.
9. The Fed worries about American arms of European banks - This WSJ piece is unsettling.
The Federal Reserve Bank of New York, which oversees the U.S. operations of many large European banks, recently has been holding extensive meetings with the lenders to gauge their vulnerability to escalating financial pressures. The Fed is demanding more information from the banks about whether they have reliable access to the funds needed to operate on a day-to-day basis in the U.S. and, in some cases, pushing the banks to overhaul their U.S. structures, the people familiar with the matter say.
Officials at the New York Fed "are very concerned" about European banks facing funding difficulties in the U.S., said a senior executive at a major European bank who has participated in the talks.
10. Totally Jon Stewart on the madness that is The Tea Party
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