Here's my Top 10 links from around the Internet at 3.30 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.
My must listen today is #1. A debt jubilee is radical, but is appearing more inevitable the longer this grinding deleverating goes on.
It's well worth a listen in full.
Keen, who I've often linked to from these Top 10s, proposed an interesting idea for a Debt jubilee. He starts talking about it around 19 minutes in.
He says the government should print money to pay (say) $100,000 to borrowers as long as they use it to repay debt. Savers would receive the $100,000 to compensate for any restructure.
He also has an interesting idea for 'poison pill' Jubilee shares that can only be traded 7 times before they are stuck with the last owner and then are abolished after 50 years. He discusses this from 34 minutes on.
I'll go into more detail on this in a separate later report, when I get some time. Keen's ideas are deeply radical to the existing orthodoxy on our current banking system and our banking system.
2. The pain in Spain - Ambrose Evans Pritchard points out the pain inside Spain's property market, banking system and economy is very, very painful.
The Centre for European Policy Studies (CEPS) thinks Spanish banks will need to write off €270bn, implying “Irish” damage to Spain’s debt trajectory. If CEPS is right, public debt could jump towards 110pc in short-order.
For now the ECB is holding the line with its three-year lending blitz. Spanish banks have taken up €316bn, allowing them to avert disaster as their debts comes due. But there are toxic side-effects. Banks must provide collateral at a steep haircut, “subordinating” other creditors - that Ebola virus infecting EU rescue schemes.
Spanish banks are parking the ECB money in Spanish bonds for the time being, a costly form of patriotism. The latest spike in yields has devalued their holdings, leaving them nursing a big loss.
There is another insidious effect. As the banks buy the bonds, foreigners sell. External holdings of Spanish debt fell from 50pc to 37pc between December and March. This does at least mean that much of the rising cost of debt payment is recycled within the Spanish economy, limiting the macro-damage. But it also makes it easier for Spain to leave the euro. Investors have noticed this, too. The eurozone is disintegrating.
And this factoid is extraordinary.
Valencia is 765 days late on bills, mostly to pharmaceutical companies and healthcare services. The debt of the regions has reached €135bn, or 12.6pc of GDP, chiefly because they look after the elderly and bear the brunt of Spain’s demographic burden. Catalan chief Artur Mas tossed nitroglycerine into the mix last week by warning that his fiefdom would run out of money by the end of the month.
3. Yay for monopolies - Hamish Rutherford at Stuff reports that Meridian Energy is thought to have squeezed up South Island power prices to double those of North Island levels, triggering an investigation.
Good thing it's in public hands.
No, wait...
4. An unsympathetic IMF - Christine Lagarde, the head of the IMF, let slip over the weekend in a Guardian interview she didn't have a lot of sympathy for tax-dodging Greeks.
Greece, which has seen its economy shrink by a fifth since the recession began, has been told to cut wages, pensions and public spending in return for financial help from the IMF, the European Union and the European Central Bank.
Asked whether she is able to block out of her mind the mothers unable to get access to midwives or patients unable to obtain life-saving drugs, Lagarde replies: "I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education. I have them in my mind all the time. Because I think they need even more help than the people in Athens."
Lagarde, predicting that the debt crisis has yet to run its course, adds: "Do you know what? As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax." She says she thinks "equally" about Greeks deprived of public services and Greek citizens not paying their tax.
"I think they should also help themselves collectively." Asked how, she replies: "By all paying their tax."
5. NZ a money laundering paradise - Naked Capitalism's Richard Smith has another go at New Zealand's lax Companies Office, which is rightly being exposed by some good reporting by Michael Field at Fairfax.
The MED, the Companies Office and Craig Foss need to kick some serious bureaucratic butt. Gareth Vaughan reported last month Foss still thinks we have a 'world leading' company registration system and a 'programme of work' was cleaning out the register. Some one needs to get that programme of work going.
Here's Smith:
Assume we agree with the premise of the Stuff story (Russian mafia). Assume also, reasonably, that if one connected company is dodgy, it means all of them are at least worth a quick look. On that basis, we have a whole bunch of active companies worth a quick look, as follows:
35 active New Zealand companies, some with possible Russian Mafia links, at 17 Georgia Terrace, Albany.
594 active New Zealand companies, many with possible Russian Mafia links (run inter alia, by Vanagels, Bilder and miscellaneous residents of Cyprus), at Level 4, 44 Khyber Pass Road. …and… another 730 defunct New Zealand companies at 17 Georgia Terrace, Albany, many with possible Russian Mafia links, that may still, in the worst case, have active overseas bank accounts.
1766 defunct New Zealand companies at 69, Ridge Road, Albany, many with possible Russian Mafia links, that may still, in the worst case, have active overseas bank accounts.
That’s 3,000 companies that are worth some level of closer scrutiny: or at least, the (large) subset of that 3,000 that has overseas directors.
6. Swiss capital controls - Reuters reports Switzerland is drawing up plans for capital controls in the event of a Euro zone collapse.
The central bank governor wrote a thesis in 1994 predicting the collapse of the euro...
"We must be prepared just in case the currency union collapses, although I don't expect that," Swiss National Bank President Thomas Jordan, who predicted the euro zone crisis in his 1994 doctoral thesis, told the SonntagsZeitung newspaper.
Jordan said a group set up by the Swiss government to consider possible scenarios in the case of a euro break-up was focusing on instruments to fight the strength of the safe haven franc which has soared during the euro zone crisis.
"One measure would be capital controls, in other words measures which directly influence the flow of capital into Switzerland," he said, but declined to give further details.
7. Nervous Chinese government - Reuters reports a communist party official has been arrested on suspicion of rape after a chorus of debate on microblogs suggesting a coverup.
The case has been widely discussed on China's wildly popular Twitter-like microblogging site Weibo, after reports about the rapes naming him as the perpetrator began circulating online over the past week.
"Officials these days are all like this. It's really terrible," wrote one Weibo user. "These dog officials are everywhere. Only execution will sate the public's anger," wrote another.
8. Greece's death spiral - Forbes reports on a collapse in the Greek economy in May. The details are worrying.
Tourism revenue declined by 15% YoY in 1Q12 – and that was before things really started unraveling during 2Q12. In the ten days after the May elections, 50’000 bookings were canceled. There is now a clear chance that 2Q12 tourism revenue is going to drop by more than 20% YoY. And Greece is among the most tourism-dependent economies in Europe – it makes up 16% of GDP.
The second shocker of the week was the pace of tax revenue decline- suddenly dropping by -10% in May. The proportion of small and medium-sized companies losing money is in the process of vaulting from 20% in 2011 to 60% 2012.
9. Inflation targets + exchange rate targets - Two IMF economists argue here at VoxEU that emerging market central banks should target both price stability and exchange rate levels.
Before the global crisis, central banks could reply ‘inflation targeting’ to virtually any question about their policymaking and the ‘Great Moderation’ seemed to back them up. The crisis has put a stop to this smugness. Central banks are now engaged in emergency evasive manoeuvres and are scrambling for new intellectual anchors. This column argues that emerging market central banks should view both price and exchange-rate stability as targets.
The idea of using more tools to address economic problems is one that has been gaining traction in the wake of the financial crisis, which has brought home that a narrow view in which all will be well as long as central banks deliver stable consumer prices simply doesn’t hold water. Policymakers need to target many aspects of economic performance, and make use of a broad array of tools (including macroprudential regulation, capital controls, etc.) to deliver macro-financial stability. To be sure, excessive policy activism has its costs (and those lessons should not be forgotten), but the crisis suggests that leaving available policy instruments on the table is not the right answer either.
10. Totally Jon Stewart on lobbyists, cockroaches, vermin and Frankenstein
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.