Wednesday's Top 10 with NZ Mint: China's slowing housing market; How computers are bifurcating the workforce; ECB's 'cash for trash'; The Great Gatsby curve; Dilbert

Here's my Top 10 links from around the Internet at 1.30 pm in association with NZ Mint.

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

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

Jon Stewart is essential watching at #10.

1. Keep an eye on China's housing market - The good news yesterday on Chinese growth helped boost our currency overnight.

But it's worth watching the fast slowdown in the Chinese housing market.

Home sales rose at their slowest pace in three years in 2011 and the slowdown was marked in the final quarter of the year.

If it slows too fast the Chinese leadership may do something to ease the restrictions put in place last year.

Some are pointing to the end of the party congress in March for action.

Here's Bloomberg:

“The property industry visibly slowed down quickly in the fourth quarter,” said Alan Jin, a Hong Kong-based property analyst at Mizuho Securities Asia Ltd, who expects the data to worsen in the next two quarters because “developers are already short of capital.”

China’s residential values fell for a fourth month in December, according to SouFun Holdings Ltd. The government said last month at an annual economic planning meeting that it won’t back away from real-estate industry curbs this year that are damping home sales and pulling down prices.

2. 'Easy and cheap money drives out good money' - PIMCO's Bill Gross argues in this FT.com opinion piece that very low interest rates may actually cause deleveraging.

Gresham’s law needs a corollary. Not only does “bad money drive out good,” but “cheap” money may as well. Ultra low, zero-bounded central bank policy rates might in fact de-lever instead of relever the financial system, creating contraction instead of expansion in the real economy. Just as Newtonian physics breaks down and Einsteinian concepts prevail at the speed of light, so too might easy money policies fail to stimulate at the zero bound.

Historically, central banks have comfortably relied on a model which dictates that lower and lower yields will stimulate aggregate demand and, in the case of financial markets, drive asset purchases outward on the risk spectrum as investors seek to maintain higher returns. Near zero policy rates and a series of “quantitative easings” have temporarily succeeded in keeping asset markets and real economies afloat in the US, Europe, and even Japan. Now, with policy rates at or approaching zero yields and QE facing political limits in almost all developed economies, it is appropriate to question not only the effectiveness of historical conceptual models but entertain the possibility that they may, counterintuitively, be hazardous to an economy’s health.

3. 'Cash for trash' - The ECB's LTRO (Long Term Refinancing Operation) was the big news of the last month. It seems to have settled things down.

But here's how Bill Gross describes it in a Tweet. HT Zerohedge.

What does #LTRO stand for? 1. A shell game; 2. Cash for trash; 3. Three-card “monti;” or 4. All of the above.

4. 'Not enough to stop collateral contagion' - Here's Gordon T Long arguing in great detail that the LTRO won't solve Europe's collateral contagion via Zerohedge

Here is the stark reality of what forced the ECB to offer unprecedented three year loans at absurd rates and most alarmingly, the acceptance of collateral that no other financial institutions will accept. The ECB has sacrificed its balance sheet in yet another EU "kick at the can".

5. The evolution of capitalism - John Kay makes some good points about how the nature of capitalism has changed since the days of Marx. There are now many more limited liability and publicly listed companies where a managerial class rather than a muscular owner makes the decisions.

I'm not sure what it changes, but it's an interesting insight.

The business leaders of today are not capitalists in the sense in which Arkwright and Rockefeller were capitalists. Modern titans derive their authority and influence from their position in a hierarchy, not their ownership of capital. They have obtained these positions through their skills in organisational politics, in the traditional ways bishops and generals acquired positions in an ecclesiastical or military hierarchy.

If the first half of the 20th century was a time of fundamental change in the nature of business organisation, the second half was a time of fundamental change in the nature of business success. The value of raw materials is only a small part of the value of the production of a complex modern economy, and the value of physical assets is only a small part of the value of most modern businesses. The critical resources of today’s company are not its buildings and machines but its competitive advantages – its systems of organisation, its reputation with suppliers and customers, its capacity for innovation. These attributes are not, in any relevant sense, capable of being owned by anyone at all.

6. The bifurcated society - Rick Bookstaber has written an enlightening piece at Credit Writedowns on how computers are taking the jobs of the middle classes, leaving a poor proletariat and a few very rich masters of the universe.

We have had an axiomatic view that when technology uproots us from jobs it opens up new ones, and the new ones are even better in pay and in job satisfaction. After all, somebody has to make all those robots. It is a comforting thought, but it is not really an axiom, perhaps just a lucky result that has obtained over the course of the industrial age. There was always a West where the workers could go, an expanding population, undeveloped countries, and new products and demand. The same may continue, but it doesn’t look like it is.

Which sort of makes sense if we are moving toward living in a virtual world with virtual industry taking on increasing prominence, and with those industries not particularly labor intensive (or for that matter capital intensive – at least nothing like the era of steel and railroads), or not labor intensive for those with motor as opposed to cognitive skills. We aren’t thinking too much about this right now. We focus on running out of resources, not on running out of new markets, more specifically new markets – both of new consumers and new products – that bring as many new jobs with them as are being displaced by machines.

7. Recession locked in - Tim Duy does a great job on his blog of cutting through all the noise in Europe to the basic problem that even the LTRO carry trade can't fix.

The actions of the European Central Bank greatly eased the immediate financial pressures in the Eurozone.  But the underlying problem of internal imbalances remain, and the European response is still  not addressing those imbalances.  Instead, the commitment to the fixed exchange rate combined with Germany's failure to recognize that their current account surplus must turn to deficit if they ever hope to be repaid promises to lock the Eurozone on the path of ongoing recession.

8. The Great Gatsby Curve - Paul Krugman refers in this New York Times blog to a speech by Alan Krueger, the chairman of the Barack Obama's Council of Economic Advisers, about inequality.

It includes a great chart showing New Zealand having a relatively unequal and not very socially mobile society, at least in 1985.

The chart shows that the more unequal a society gets the less mobile it becomes, which is sort of axiomatic. What's interesting is that America has become more unequal and less mobile over time.

Here's Krugman's take on Krueger's chart:

As he shows, America is both especially unequal and has especially low mobility. But he also argues that because we are even more unequal now than we were a generation ago, we should expect even less social mobility going forward.

Very illuminating — and disturbing.

9. Control fraud - William Black writes about the control fraud inherent in the relationship between Apple and its Chinese suppliers. HT Ed Harrison at Credit Writedowns. This is a must read in conjuction with the must watch from Jon Stewart below.

Anti-employee control fraud creates real economic profits for the firm and can massively increase the controlling officers’ wealth. Honest firm normally cannot compete with anti-employee control frauds, so bad ethics drives good ethics out of the markets. Companies like Apple and its counterparts create this criminogenic environment by selecting least-cost – criminal – suppliers who offer components at prices that honest firms cannot match. Effectively, they hang out a sign – only the fraudulent need apply to be suppliers. But the sign is, of course, invisible and cannot be introduced in court so Apple and its peers also get deniability. They are shocked, shocked that its suppliers are frauds that cheat their employees and put them and the public’s health at risk in order to make a few extra yuan or dong for the senior officers.

Fraudulent suppliers, therefore, have compelling incentives to locate in nations and regions in which they can commit fraud with impunity. The best way to evaluate the fraudulent CEOs’ view as to the risk of prosecution for their frauds is to observe whether they take cheap means of hiding their frauds. When the CEOs do not even bother to avoid creating a paper trail documenting their frauds one knows that they view the risk of prosecution as trivial. Nations that are corrupt, have weak rule of law, weak or non-existent unions, poor protections for workers, a reserve army of the impoverished, and have few resources devoted to prosecuting elite white-collar crime provide an ideal criminogenic environment for firms engaged in anti-employee control fraud. The ubiquitous nature of anti-employee control fraud (and tax fraud) in many nations explains why U.S. industries have been so eager to “outsource” U.S. jobs to fraud-friendly nations. Companies like Apple also discovered long ago that Americans often made poor senior managers in these nations because they objected to defrauding workers. Not a problem – there are plenty of managers from other nations that have no such ethical restraints. Foreign suppliers run by Asian managers are increasingly dominant.

10. Totally relevant Jon Stewart video on outsourcing, in particular the Foxconn complex in China that makes iPads.It relates well to #9,  #8 and #6.