Here's my Top 10 links from around the Internet at 11.30 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.
Sorry I didn't get a Top 10 out yesterday. Tad busy in Wellington. Good crop of videos today. Particularly Clarke and Dawe. I LMAO as the youth might text...
1. China wants physical assets - Ambrose Evans Pritchard writes at the Telegraph that China has let slip that it wants to 'liquidate' US Treasury bonds at some stage and buy physical assets, including the likes of Boeing and Apple.
This is a key moment, if it happens.
It's the moment when China essentially calls in its debts and wants to exchange worthless debt paper for worthy equity in real assets.
This will be a theme of years to come.
How does China convert its liquid paper assets in America and other places into physical assets in America and elsewhere.
That includes New Zealand. China is our biggest buyer of our government bonds.
At some stage it will want to swap that debt for equity. Perhaps we'll have some SOEs left to hand over at that point.
Or maybe we'll just have land left...
Here's Ambrose:
A key rate setter-for China's central bank let slip – or was it a slip? – that Beijing aims to run down its portfolio of US debt as soon as safely possible.
"The incremental parts of our of our foreign reserve holdings should be invested in physical assets," said Li Daokui at the World Economic Forum in the very rainy city of Dalian – former Port Arthur from Russian colonial days.
"We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way."
"Once the US Treasury market stabilizes we can liquidate more of our holdings of Treasuries," he said.
2. The problem with mark-to-make believe - Jonathan Weil writes well at Bloomberg about how changes in 2008 to mark-to-market rules for banks valuing assets such as toxic bonds (which allowed them to ignore market collapses and avoid valuation death spirals) has undermined confidence in banks now because investors now don't believe the mark-to-make believe numbers banks value their assets at.
There’s a simple solution here. In 2005, when the IASB and the U.S. Financial Accounting Standards Board began discussing how to overhaul the rules for financial instruments, they said one of their top three long-term objectives was this: “Require all financial instruments to be measured at fair value with realized and unrealized gains and losses recognized in the period in which they occur.”
Both boards have abandoned that path. Bowing to pressure from Congress and the banking industry, the FASB in early 2009 changed its rules to let companies keep large losses on impaired bonds out of net income. If the broad principle the boards set forth six years ago were in effect today, it wouldn’t be possible to have multiple accounting treatments for the same kind of bond on a company’s books. There would be only one.
The markets, meanwhile, know better than to believe the banking industry’s balance sheets. And so we get the present situation where most of Europe’s largest banks, including France’sBNP Paribas (BNP) SA and Societe Generale (GLE) SA, are trading for far less than what their books say their net assets are worth. The problem with fair-value accounting now is investors don’t get enough of it. Those banks that are destined to blow up will do so regardless.
3. A A$310 billion problem - Leith van Onselen writes at Macrobusiness.com.au about the scale of the short term foreign funding problem that Australian banks have, which the Reserve Bank of New Zealand referred to indirectly in yesterday's September quarter Monetary Policy Statement.
Here's a great chart and van Onselen's comments:
As you can see, offshore borrowings by depository corporations (banks mostly) has exploded over the past 20 years, from around $50 billion in 1988 to around $650 billion currently.
Currently, depository corporations have around $310 billion of short-term foreign borrowings maturing within 12 months, in addition to another $350 billion of longer-term foreign borrowings outstanding. Other things equal, this $310 billion of short-term foreign borrowings must be refinanced within 12 months just to maintain the current level of credit within the Australian economy (let alone increase it).
What should be clear from the above charts is that the growth in Australian housing values has been funded, to a large extent, by foreign borrowings, much of it short-term.A key risk going forward is that the banks’ ability to refinance their borrowings rests with the willingness of foreign investors to continue to lend them money. But in times of heightened risk-aversion – such as the impending European debt crisis – foreign investors can become nervous and less inclined to continue extending credit, which could leave Australia’s banks, house prices, and broader economy exposed to a sudden funding freeze.
4. At least he made the trains run on time - I can't resist a good Downfall spoof video and this one with Murray McCully lecturing Len Brown and John Key is a cracker.
5. 46 out of 50 US states insolvent - Economic Policy Journal points out Cass Business School economist Kevin Dowd saying almost all US states are insolvent. He argues that inflation will take off soon and then this will happen:
Once inflation makes a comeback, a point will eventually come where the Fed policy has to go into sharp reverse – just like the late 1970s, interest rates will be hiked upwards to slow down monetary growth. The consequences would be most unpleasant: the U.S. would experience the renewed miseries of stagflation – and a severe one at that, given the carnage of a renewed financial crisis and the large increases in money supply working through the system.
Moreover, as in the early 1980s, higher interest rates would lead to major falls in asset prices and inflict further losses on financial institutions, wiping out their capital bases in the process. Thus, renewed inflation and higher interest rates would deliver yet another blow to an already gravely weakened financial system.
6. Bigger than 9/11 - Frank Rich writes at the New York Magazine that the mass looting of America's wealth by bankers and the rich through the 2000s was a bigger disaster for America than 9/11. Fair enough.
In retrospect, the most consequential event of the past ten years may not have been 9/11 or the Iraq War but the looting of the American economy by those in power in Washington and on Wall Street. This was happening in plain sight—or so we can now see from a distance. At the time, we were so caught up in Al Qaeda’s external threat to America that we didn’t pay proper attention to the more prosaic threats within.
By portraying Afghanistan and Iraq as utterly cost-free to a credulous public, the Bush administration injected the cancer into the American body politic that threatens it today: If we don’t need new taxes to fight two wars, why do we need them for anything? But that’s only half the story in this alternative chronicle of the decade’s history. Even as the middle class was promised a free ride, those at the top were awarded a free pass—not just with historically low tax rates that compounded America’s rampant economic inequality but with lax supervision of their own fiscal misbehavior.
7. Useful graphics - Here's a useful site called 100 companies created off the back of Paul Callaghan's widely watched 'Mapping our future' speech.
It shows manufacturing in New Zealand produces higher wages, more GDP per worker and is actually our biggest employer.
Try telling that to our Prime Minister and Reserve Bank Governor, who seem determined to destroy what's left of our manufacturing sector with their disinterest in the high New Zealand dollar.
I've linked to it before, but here's a repeat of Callaghan's speech.
8. A wider moral malaise - The Chief Rabbi of Britain (and the Commonwealth), Jonathan Sacks has written an important reflection on 9/11. He says the West was vulnerable because of its own arrogance and wasteful consumerism in the wake of the end of the Cold War. Fair enough.
All great civilisations eventually decline, and when they begin to do so they are vulnerable. That is what Osama bin Laden believed about the West and so did some of the West’s own greatest minds.
If so, then 9/11 belongs to a wider series of phenomena affecting the West: the disintegration of the family, the demise of authority, the build-up of personal debt, the collapse of financial institutions, the downgrading of the American economy, the continuing failure of some European economies, the loss of a sense of honour, loyalty and integrity that has brought once esteemed groups into disrepute, the waning throughout the West of a sense of national identity; even last month’s riots.
These are all signs of the arteriosclerosis of a culture, a civilisation grown old. Whenever Me takes precedence over We, and pleasure today over viability tomorrow, a society is in trouble. If so, then the enemy is not radical Islam, it is us and our by now unsustainable self-indulgence.
The West has expended much energy and courage fighting wars in Afghanistan and Iraq abroad and defeating terror at home. It has spent far less, if any, in renewing its own morality and the institutions — families, communities, ethical codes, standards in public life — where it is created and sustained. But if I am right, this is the West’s greatest weakness in the eyes of its enemies as well as its friends.
9. Who killed Economic growth - Richard Heinberg has created this video below talking about the limits to growth. Powerdownkiwi will appreciate this and may already have seen it before.
10. Totally Clarke and Dawe - John Clarke is a European banker that is preparing to call in Italy's debt...
"Lift feet and brace for impact..."
"Is Mrs Default there please...."
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.