Tuesday's Top 10 with NZ Mint: Asian NZers and women dominate Barfoots top agents list ; A depressing Golden Dawn in Greece; 'Both governments and central banks should print money and then swap it'; Dilbert

Here's my Top 10 links from around the Internet at 1 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.

My must read today is #9 from an Australian Treasury economist on how both governments and central banks could print money to make the debt go away...

1. Pain without gain - Paul Krugman points at the New York Times to the punishing bond yields still being imposed on Ireland (see chart below), which has been promoted as an austerity success story.

His point is well made.

Why should any sovereign and its voters prostrate themselves at the feet of the bond market vigilantes when it doesn't actually reduce your borrowing costs?

Or, vice versa. Countries as America, France and New Zealand actually have lower interest rates now than before their credit ratings were cut.

It's true that Spain, Italy, Greece etc are seeing higher interest rates after failing to meet their deficit forecasts. But is that because their economies are contracting, which makes the debt harder to repay, or because they are offering a lot more debt?

At the moment there seems unlimited demand for 'safe haven' government debt as consumers and companies deleverage and pump their savings into bonds.

2. Trust your fund manager? - There's always a robust debate about whether fund managers can be trusted or relied on to get better returns than the market or assets such as property.

This piece from Felix Salmon from Reuters on venture capital returns is enlightening.

It suggests that venture capital funds have been taking pension funds (and therefore savers) for a ride. A really good read. HT @samfromwgtn via twitter. Which adds plenty of credibility to the link.

Here's Felix citing a report from endowment fund investor the Kauffman Foundation:

In reality, VC returns have been dismal for the past 15 years:

"During the twelve-year period from 1997 to 2009, there have been only five vintage years in which median VC funds generated IRRs that returned investor capital, let alone doubled it. It’s notable that these poor returns have persisted through several market cycles: the Internet boom and bust, the recovery, and the financial crisis… In eight of the past twelve vintage years, the typical VC fund generated a negative IRR, and for the other four years, barely eked out a positive return."

I’m all in favor of investment strategies which display low-volatility returns, but only when those returns are actually positive; in reality, according to this report, the average VC fund returns less money to investors than they invested in the first place.

the VC industry, as a whole, is being incredibly successful at extracting rents from dumb institutional investors. These investors wouldn’t dream of investing in a public company where there was no transparency as to basic questions like how much money the principals were being paid, but they happily invest in venture capital funds where the founders cream off so much of the income that younger top performers end up leaving the firm. And in general, VCs are incredibly good at playing fear off against greed: would-be investors really want massive VC returns, and they really don’t want to be left out in the cold. Even Kauffman does that: “We have chosen to stand down on terms,” they write, “when faced with an investment decision in a top-tier fund.”

3. A stereotype broken - My mental image of real estate agents was probably formed a long time ago in Palmerston North. For some reason it was stuck in my head that they were often middle-aged men with moustaches -- former teachers and traffic cops and farmers.

Things have changed, and particularly in Auckland.

Barfoots released its list of its top 25 agents today. Nine of its top 10 agents were either women or Asian New Zealanders.

Only 6 of the top 25 were white, middle-aged men and there was only one moustache in the lot of them.

4. All that was missing was the stubby little moustache and the floppy hair - Here's the victory speech from the leader of Greece's Golden Dawn party yesterday.

Watch it and weep. He was surrounded by beefy men with black teeshirts emblazoned with a red and black symbol eerily resembling the swastika.

These friendly chaps demanded that journalists stood up when the dear leader entered the press conference room as a mark of their respect. And one of Golden Dawn's policies is to kick out all migrants and then lay a line of mines along the border to stop them coming back in...

5. The answer is to reform capitalism, rather than adopt socialism - Robert Reich, who was Bill Clinton's Labour Secretary, has written a useful piece at Huffington Post saying capitalism needs to be reformed so the productivity gains of the computer revolution are more evenly shared.

Most of the gains are going to the shareholders who own the companies, and to the relatively small number of very talented (or very lucky and well-connected) managers, engineers, designers, and legal or financial specialists on whom the companies depend for strategic decisions about what to produce and how. Increasingly, via stock options and bonuses, the owners and the "talent" are one and the same. While many other people indirectly own shares of stock through their pensions and 401-K plans, 90 percent of the value of all financial assets in the U.S. belongs to the richest 10 percent of the American population.

Meanwhile, a large number of low-paid service workers sell personalized comfort and attention -- something software can't do -- in the retail, restaurant, hotel, and hospital sectors (most U.S. job growth since 2009 has occurred here.) Others -- temps, contract workers, the under- and partially-employed, fill in where they can. A growing number are not working.

The problem is not that the productivity revolution has caused unemployment or under-employment. The problem is its fruits haven't been widely shared. Less work isn't a bad thing. Most people prefer leisure. A productivity revolution such as we are experiencing should enable people to spend less time at work and have more time to do whatever they'd rather do.

The problem comes in the distribution of the benefits of the productivity revolution. A large portion of the population no longer earns the money it needs to live nearly as well as the productivity revolution would otherwise allow. It can't afford the "leisure" its now experiencing involuntarily.

Not only is this a problem for them; it's also a problem for the overall economy. It means that a growing portion of the population lacks the purchasing power to keep the economy going. In the United States, consumers account for 70 percent of economic activity. If they as a whole cannot afford to buy all the goods and services the productivity revolution is generating, the economy becomes stymied. Growth is anemic; unemployment remains high.

6. A path to prosperity - Nobel prize winning economist Joe Stiglitz makes some good points in this video. He says the assets are still there in the economy. It's just the claims on those assets through various debt instruments need to be reshuffled. Debt jubilee anyone? Or maybe the nationalisation of the banks and or a good dose of Modern Monetary Theory?

7. A contrarian's predictions - Beijing-based academic economist Michael Pettis is a regular commentator and chronicaller of China's economy. Here he explains why he thinks China's average growth rate in this decade could drop to 3%.

Needless to say, that would be a problem for Australia and NZ. Worth a read.

Here's a sample via Nouriel Roubini's Economonitor:

Non-food commodity prices are set to collapse over the next three to four years.   “Collapse” is not too strong a word.  China’s share of global demand for such commodities as iron, cement, copper, etc. is completely disproportionate to its size and almost wholly a function of its very high growth in investment.  As investment growth drops sharply, as it must, global demand for non-food commodities will plummet.

8. 'Fiscal discipline is for the long term' - International Economist Charles Wyplosz writes at VoxEu about mindless Eurozone austerity:

It is not just the election of François Hollande in France. Adopting contractionary fiscal policies in the teeth of a double-dip recession never made sense. And yet, public debts are high and markets in endemic panic.

The solution must be based on a comprehensive analysis of the situation, not on arcane debates on the strength of the “confidence factor”. It ought to combine debt restructuring, front-loaded collective fiscal expansion and long-run unbreakable commitments to fiscal discipline.

9. Print, baby, print - Australian Treasury Economist Richard Wood writes at Economonitor about the options for Europe, including money printing. This seems the inexorable path down which the Europeans (and Americans) and eventually everyone else will tread. That's if the Germans will let them (the Europeans at least) and savers of the world don't unite and revolt over the stealth default via inflation rates being above interest rates.

Wood suggests both central banks and governments print money and then swap it...

Hey presto!

Financing budget deficits without raising levels of public debt cannot be achieved by simply requiring a central bank to print money.  To ensure the integrity of its balance sheet, the central bank needs to receive assets in the form of new bonds issued by the government to facilitate the transfer of the new money to the government.  As government bonds held by the central bank are counted as part of public debt, an alternative mechanism is needed to create the new money to finance the budget deficit.

The Ministry of Finance could create new currency and use this new money to finance the budget deficit.  This mechanism would result in two currencies circulating simultaneously.

An alternative strategy would have the central bank and the Ministry of Finance both printing new money simultaneously, and then exchanging it.  In that way, in the case of periphery countries, Euro issued by the ECB would be used to finance the deficit.  There would be no need for two currencies to circulate in the economy.

10. Totally Jon Stewart on Osama bin Writin - The Al Qaeda brand needed a spruce up...


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?

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The rise of extremism (both on the right and on the left) in Europe was as predictable as night following day. Place any society under sustained stress for long enough and you can guarantee it will fracture and throw up nasty extremophiles of all types. Fractures will be along political, racial and religous lines, just as it ever was - and given that Europe has experimented for the last 40 years plus with the importation of ethnic and religious (predominantly Islamic) muliculturialism there is plenty of fuel for the fire.
Better get used to it mind - this financial stress is as nothing to the resource depletion stress that is the underlying problem.

Totally agree.

9.  Printing to defraud creditors...
Here's a counterpoint to the very popular idea that defrauding creditors with inflation is a great way to escape.  The Telegraph pointing out the creditors include your own super annuation and pension funds.
Also shows how QE doesn't always produce increased investment as is sometimes claimed. Pension funds are diverted funds away from investment to cover their funding shortfall.

6.  Debt Jubilee...
We already had one of those, all the bad debts of the banks were forgiven.

The Reich piece is nonsensical and he debunks his own arguement by noting that ownership of these tech behemoths is very widespread. No doubt most of the real wealth has gone to those kids who misspent their youths in garages and darkened bedrooms inventing all this stuff when they could have been out vandalising things like any normal teenager, but that is how the system is supposed to work. Its called an incentive.
I would guess the spread of the gains from the tech revolution is wider than from any other cycle of progress as ownership of these companies is relatively widespread, they employ lots of people at high wages and just about every business or individual in the west at least and most of Asia has become more productive at home and at work because of the Googles and the Microsofts ( not so sure about Facebook ). Compare that with how the benefits of the cotton working machines in the North of England were distributed and I think we have come a long way.
I am unsure what mechanism of reform he proposes but perhaps he has France's new 75% top tax rate in mind together with paying people lots of money to do nothing. Doubt if that is the answer.

Excellent links Bernard. I'm afraid the phenomenon of 4) will only get worse unless there is a radical change in economic thinking: http://www.creditwritedowns.com/2012/05/hitler-mussolini-1921.html

Folk really should be running their rule over solar PV as a possible home for a portion of their investment cash, as this piece emphasises:

I would be interested to see some real numbers as I looked a solar water heating and it didnt add up....I'd be very surprised if solar panels do either.....$648 means a payback of 12 years...will the units last that long?  shares certianly would.
If you consider debt to do it, and its very similar to solar water...so borrow at 7%...ho hum.

No-one mentioned debt to buy a system - the comparison hinted at (and the one I would make) in the article is - if you have $10,000 in a term deposit, would it now be better invested in a PV system in terms of rate of return?
Panels are certified/guaranteed generally to be running at least 80% efficiency after 25 years, so yes they do last rather longer than you fear.
Re;solar water systems - the price of these has not declined (in fact some have gone up!) anything like the price of solar PV - the latter price has come down VERY rapidly because the price of the most important component (the panels) has tumbled.
Anyway get out there and do your own research. Powersmart NZ are a good company to start with (they will provide free modelling/costing).

Certainly worth looking at if you are rural, probably will look at it for a property we are considering. Often rural areas face power outages and this could be more secure - and hey no line charges.

Ah well then if you have no power to site then yes but thats a lot different.
I would assume then that you would then do solar water as well so $7k ish and have a back up generator, a 5kw diesel unit is about $2.5k......so 20k......The interesting thing would be if it could be converted to run your own bio-deisel....suspect the small units wont though.

There is power, but it's some distance away and we would have to bear the cost of connection. There is a ton of firewood and a wood fired hot water system in place, although I would want to convert that to a wood stove for cooking /heating and radiators. We would need a secure power supply so we have lighting - leds -, fridge /deepfreeze and most important internet. I plan to double glaze. Overall our electricity use would not be high, it's not a big house.

I have done some research and solar power just doesnt add up well yet....as a cost saving idea.
We mentioned shares in Mighty Power I think it was and not a term deposit......and yes I commented on their guarantee, sure show a NZ URL with say a  15+ year life guarantee and I'd then say its starting to look interesting...
So lets not distract on a % of efficiency at 25 years but how long the panels will live and how long the vendor will offer a warrantee......yes sure solar hot water has not decreased a lot, yet the numbers are comparible ie a 10~12 year payback. 
For instance for PV panels,
System warranties are likely to be for 5 years, including a workmanship warranty on the panels plus a 25-year limited warranty of power supply, and a 5–10-year warranty on the inverter."
So you run the risk of loss for 7 years just to break even. Compare against solar water heaters that actually tend to have a ten year warrantee and can usually be replaced/repaired quite cheaply...ie the piping and HW tank should last 50 years with ease....
Now when I read some American sites they are starting to talk 20 year warrantees,
http://homepower.com/article/?file=HP118_pg12_AskTheExperts_1 that is a whole new ball game.
I raised debt to make it clear that even if you added $8k to your mortgage to get 7% average rate (ish) thats just not going to work. Dunno about you but debt would be my only way to do this. I would guess that most under 45s would also be in a similar boat.
Shares on the other hand should give you a dividend plus capital appreciation and they are tax free to sell, unlike a deposit account. Other alternatives is add a bedroom, that will gain you value....and is tax free....
Now when we start to see paybacks in the 5 year range or US length warranties then its starting to make some sense....

Thats fine Steven, you talk yourself out of it, no problem.

Just about to have my 100% free solar powered shower. Water heated by a BRANZ approved evacuated tube / integrated hot water cylinder supplied by Sanders Enginnering at Papamoa. Cost less than a NZ made hot water cylinder! Our home is solar lit in every room using LED bulbs from CM in Ashburton. Wired by our electrician for backup use - but used now as main lighting. We have 2 X 20 watt panels and 1 x 10 watt. The oldest was purchased in Hawaii in 1990. The 9 plate 12 volt MARINE battery is the 12 month old reject from our speed boat that is now 5 years old and still going strong. Our power bill is so low we have changed to a 'Low-user-rate' that eliminates the Line Charge - which used to be the biggest part of our power bill. 
Instead of proving that solar does not work on a spreadsheet - just do some real research - keep it simple. It works. Too the experts who "know" that it does not work - HAHAHAHA. Did I ever mention the Browns Gas generators on my cars and mowers? So many 'experts' claim that this does not work. I just crack up laughing as I keep driving with what would have previously been an empty tank!  Those who fail - generate the Browns Gas - then let it escape before its 32km per second flame-front ignites 100% of the fuel above the piston.  Come on PDK - back me up

Solar PV has just dropped cost/watt yet again. There are now panels which trick-up 230 volts   @ 50hz, synchronise with each other, and with the grid if linked.
Bought by the container-load, they're down to 85/Watt.  I work on $3 as break-even, although I've seen calcs for $3.60. Either way, that's the end of dams and windfarms. No new project will ever match existing production costs - we've cherry-picked the cheapest.
Don't know about gas - I see the assumption that cars will continue, as a (common) mental starting-point that BAU should be maintained. It won't.

...... not many folks know this , but New Zealand has been operating ( very slowly ! ) under an austerity programme , for 2 decades now .....
Yup , the Reserve Bank's 0 - 2 % inflation target has crushed the growth out of the real economy ......
....... only speculation , such as bidding up house prices has flourished .......
We need some inflation , preferably under 40 % p.a. ...... OK , OK ....... under 20 % then !

You forgot to mention Muldoon's "just-this-once" Provisional Tax!

Sometimes GBH you write complete and utter bollocks
This is one of those times.

.... no , I really believe it's true : We should keep inflation under 20 % per annum !

But that's OK Gibber isn't it...? I mean sometimes so does Bernard ,but not necessarily with a smile.

.... tis a tadge mean to say that " sometimes GBH you write complete and utter bollocks " ..... isn't it ! ...
" Sometimes " ...... c'mon Gibber , be a sport , gimmee a big " Always " next time . Please ?

Quality control wise GBH, when the level of bollocks to truth is less than 80% I can sometimes see what you are trying to stir at.
When the level of bollocks is so high it is masquerading as a satellite, that is when your posts are a bit hard to take.


...... just to back up my insertion with a few facts : In the decade from 1980 to 1990 the inflation index rose 180 % , and NZ's GDP grew by 221 % ......
And during the Don Brash " scorch & burn " the economy years , the 0-2 % inflation era , the inflation index rose just 19 % ( 1990-2000 ) ....... and the GDP added 55 % !
...... oops ! ............ Facts 1 : Calling GBH a toss-pot 0 ........ aha ha ha deeee haaaaaaa ..

Cripes!! GBH worthy of an article by the Big B on it's own,....but as they say here at int.co....never let the facts get in the way of a good story ..eh..?
 I can't wait for the page three girl.

..... there is a grain of seriousness in my theory : the Reverse Bank's single minded focus on crushing inflation at all costs has squeezed alotta growth outta the economy .....
..... meebee a targeted inflation band of 3 to 6 % would've freed up industry a little ....
I'd like to see the cumulative  inflation & GDP growth figgers for the decade 2000-2010 ...... 

Bit of work to do but navigate from here GBH...http://www.rbnz.govt.nz/keygraphs/Fig2b.html

Interesting papers here GBH...go page 10 for graphs...http://www.rbnz.govt.nz/research/discusspapers/dp11_03.pdf

GBH nominal GDP incorporates both.
Table 6.1 & 6.2 are helpful.

..... as far as I can work out , NZ's inflation rate was 30 % over the decade 2000-10 , but GDP grew 158 % ....
Gummy exits left , wearing " Toss-pot of the day " crown ...... ahem !

always.....after 3 years? cant say I thave seen a thought off you that made sense....

9. Steve Keen as interviewed on Irish TV in April.  A suggestion that all Irish Euro debt could be paid off by exchanging Euro for the old punt on a one to one basis interested him. In other words if you bought something for €10 with a €20 note then you received 10 punts change.  The euros then were used to pay off the debt. The interview was interrupted at this stage and I can't download it.  But the thought was the debt would be paid off very easily and quickly.  Mind you I have never understood why we borrow when we could print, unlike Ireland, on exactly the same terms.  The interest would come back to NZ and be paid back on a designated term.  People say inflation but surely borrowed money is inflationary too.  What's the diff.

There is a difference, borrowed money is expected to be paid back, (and usually is plus interest). So any temp inflation is tempered by no long term expectation plus the deflationary impact of paying the sum backk plus interest plus and there is no expectation of inflation in ppls minds which apparantly is a big factor. Finally if you are lent money the lender cant spend it so its a re-distribution and not simply more.
Even if you cant understand the detail and im not sure I do either that well, you can see the effect from previous attempts at doing it...they all went very badly.

I could buy that argument if overseas money was paid back but often it isn't.  It is just rolled over and some of it is not paid back for over a century.  Apparently the overseas loan to Britain  for the battle of Waterloo was not paid back for nearly a hundred years.  A sovereign nation does not need to borrow from overseas - it can print it and lend it on the same terms and conditions

This isnt ie length of time the same argument as printing at all.  Its not unusual to roll over money say to do something else with or because we have not yet paid it all off for one reason or another.
Century, no not in NZ's case though Muldoon's money was only finally paid off by  M. Cullen I believe.   Waterloo was a somewhat different event, and indeed wars have been that historic case...but not today...
No you simply cant print it, somehow you think printing money with nothing to back it makes it valuable, it does not....it has to ultimately be backed with energy.......or work same thing...or if you dont have any more of either it takes more "money" to buy that limited energy / work....
Lending? its lending to itself?...the point is there is more of it....hence in normal/simple terms its inflationary. Besides which who is going to borrow? private ppl?  you cant keep ever increasing ones debt, at some point your interest payments exceed your income and you are then bankrupt shortly afterwards.
Throw in you have to use your currency to buy USD to buy oil. If you print more NZD it takes more to buy USD and hence the oil you need....at some point no one will sell you USD and you have no oil so your economy collapses....cant you understand that?
So here you are promoting something you dont understand....incredible...no wait.....I mean I see voodoo economics from the far right wingers often enough and I can see yet more voodoo from far left wingers like yourself.....like duh.

Perhaps Steven you should contact Prof Keen with your oh so superior knowledge.  I am sure he would be highly amused.

Phsssst , ziiiiiiinnnnng .... and there we have it folks , the finest " burn " of the day award goes to Patricia ..
...... nice one , hon !

You really are lucky breathing is an automatic function....here we have Patricia who is as far left wing from me as I am "left wing"  from you and you are letting your dislike of me/my posts get in the way of even trying to think of what she is saying v what I am saying....

 Patricia  " bested " you .....
......  take it like a man , stop whining ....... and move on ......

Please provide a URL showing Steve Keen supporting what you are saying....Otherwise,
This is nothing to do with what  Steve Keen is saying...but in terms of printing v borrowing, the reply I have given you is pretty much along the lines of Paul Krugman's comments, except maybe when you are in a liquidity trap or zero bound problem, which NZ isnt but the USA is....
Here is Prof Krugman shooting you full of holes.....
"But there’s a school of thought — the modern monetary theory people — who say that deficits never matter, as long as you have your own currency.
I wish I could agree with that view — and it’s not a fight I especially want, since the clear and present policy danger is from the deficit peacocks of the right. But for the record, it’s just not right."
"I could go on, but you get the point: once we’re no longer in a liquidity trap, running large deficits without access to bond markets is a recipe for very high inflation, perhaps even hyperinflation. And no amount of talk about actual financial flows, about who buys what from whom, can make that point disappear: if you’re going to finance deficits by creating monetary base, someone has to be persuaded to hold the additional base."
Like I said part of that who's left holding is us trying to buy USD to buy Oil...doesnt work.
PS I'd love to sit in a room with Steve Keen, I am a great fan of his, I read his site and watch any youtube clip of him I come across....he strikes me as one of the best modern day economists we have.....so Im mystified in what you say...
PPS I have been going through SK's site, cant find anything to justify why you say he supports your position on printing.
PPPS please find me something on here (or anywhere) to justify your position,
I cant find anything...........

Barfoots released its list of its top 25 agents today. Nine of its top 10 agents were either women or Asian New Zealanders.
because they tap the Asian migrant market and this is reflected in their ranking. Not that this will affect house prices for Kiwis:

Similarly the fact that www.realestate.co.nz is now available in Chinese will have no effect whatsoever.  (tongue in cheek).

@ BH re #1
"But is that because their economies are contracting, which makes the debt harder to repay, or because they are offering a lot more debt?"
OR is it because Greece has no control over it's own curreny or monetary policy and is held to ransom by Germany which makes it a geniunely risky investment.
NZ, USA & Japan's credit rating cuts are irrelevant because these countries are technically always solvent - they can never 'run out of money' - unless they VOLUNTARILY choose to default.