Here's my Top 10 links from around the Internet at 11:00 am today in association with NZ Mint.
We welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.
See all previous Top 10s here.
My apologies for no Top 10 on Friday. I was travelling to Christchurch. My must read today is #1. Ambrose can't see much of a future for the euro.
1. The week that Europe stopped pretending - Ambrose Evans Pritchard at the The Telegraph has been one of the most trenchant critics of the Euro zone's response to the Global Financial Crisis and the existence of the Euro itself.
He is right.
Europe's economies are not aligned enough to allow the sustainable existence of the euro, unless there are massive transfers of wealth and subsidies within the region.
Essentially, to save the Euro, Germany now has to transfer large chunks of its wealth to Southern Europe.
At the moment Germany thinks it can have its cake of a weak euro and the strong export economy that allows, and have a Euro-zone at the same time.
It will have to allow the creation of Eurozone bonds that it guarantees and allow the European Central Bank to bail out Southern Europe's banks.
Or it will have to give up the Euro.
Or worse still, it could do nothing while the Euro implodes under the weight of its own inconsistencies. That's what Germany is doing now.
On a single day, the European Commission said monetary union was in danger of "disintegration" and the European Central Bank said it was "unsustainable" as constructed. Their plaintive cries may have fallen on deaf ears in Berlin, but they were heard all too clearly by investors across the world.
Joschka Fischer, Germany’s former vice-Chancellor, said EU leaders have two weeks left to save the project.
"Europe continues to try to quench the fire with gasoline – German-enforced austerity. In a mere three years, the eurozone’s financial crisis has become an existential crisis for Europe."
And this is most interesting. Serious (well at least high profile) people in Italy and Spain are now talking about leaving the euro, or forcing Germany out.
Ex-premier Silvio Berlusconi offered us his cunningly pitched "mad idea" on Friday. If the ECB refuses to act as a lender of last resort, Italy should take matters into its own hands. "We should use our own mint to print euros," he said. It is a thinly veiled threat.
"If Europe refuses to listen to our demands, we should say 'bye, bye’ and leave the euro. Or tell the Germans to leave the euro if they are not happy," he said.
2. Hit the speculators - Nobel Prize winning economist Joe Stiglitz talks at Bloomberg about the need for a fairer tax system that directs activity to production rather than speculation speculation rather than production.
“It’s absolutely essential that we have a fair tax system and one that directs our economic activity to production not to speculation,” Stiglitz, a Columbia University professor, said today in a Bloomberg Television interview on “Surveillance Midday” with Tom Keene.
“If you have a tax system in which people at the very top pay half the rate of somebody who is working hard for their income simply because they get their income from speculation, that’s an unfair system,” said Stiglitz, 69, who won the Nobel Prize in economics in 2001. “It’s a distorting system. It leads to lower economic growth.”
Stiglitz appeared to discuss his new book, “The Price of Inequality: How Today’s Divided Society Endangers Our Future.”
3. Maybe Japan hasn't done so badly - Many see Japan's experience over the last 20 years as a sign of failure to deal with the bursting of an asset bubble.
Here's Paul Krugman saying Japan has actually done better at keeping unemployment relatively low. Better than America.
4. Don't rely on China again - Reuters reports China will not be able to repeat its 4 trillion yuan stimulus of late 2008 and early 2009.
The 4 trillion yuan ($628 billion) stimulus package launched to counter the post-Lehman global crisis won worldwide applause but left a stellar bill - a 10.7 trillion yuan ($1.7 trillion) mountain of local government debt, the risk of sour loans as growth slows and a super-heated property market.
Add in a naturally declining growth rate and China's ability and willingness to deliver a forceful response to mitigate the global impact from Europe's deepening debt crisis are seriously curtailed, analysts say.
"Not only is the policy room smaller, but the incentives for the government to produce a large stimulus package are smaller," Qinwei Wang, China economist at Capital Economics in London, told Reuters.
5. How political clout made banks too big to fail - Here's Bloomberg with the argument.
The circumstances that make policy makers succumb to the “too big to fail” doctrine are similar. An important difference, however, is that a Federal Reserve chairman’s resolve to bail out banks actually increases the likelihood of disaster, since the implicit promise to intervene has a perverse influence on the banks’ willingness to take risk.
Worse, “too big to fail” creates a self-fulfilling prophecy: Shortsighted policy makers will always prefer the cost of a bailout to the cost of upsetting the market. As a consequence, the problem continues and expands. Anticipating government bailouts in case of emergency, lenders are willing to lend to large financial institutions very cheaply and without restrictions. The managers of these financial institutions find it attractive to borrow a lot and to take wildly risky gambles, because they can maximize their profits by doing so.
6. Iceland property bubble - Who would have thunk it? Bloomberg reports property prices are up 40% in the last year in Iceland...
Iceland’s rebound is now being driven by household spending, a team of Arion economists led by Sveinsson said in a May 21 note. The central bank has raised borrowing costs four times since August, bringing the benchmark lending rate to 5.5 percent. The bank signaled this month more tightening is needed to cool the economy as inflation hovers well above its 2.5 percent target. Consumer prices grew an annual 6.4 percent in April, Statistics Iceland said April 27.
Faster inflation is adding to risks in the housing market as most mortgages are linked to theconsumer price index, meaning debt burdens swell as inflation accelerates. Household debt grew to 270 percent of disposable incomes in 2010, according to the latest figures available from the central bank. That compares with 217 percent a year before the banks collapsed and about 50 percent in the 1980s, according to the bank.
7. Winds of Trade War - Reuters reports the US has imposed duties on Chinese wind tower imports, alleging government subsidies that are putting US wind tower makers out of business.
U.S. producers also are asking for anti-dumping duties on wind towers from both China and Vietnam to offset what they say is unfairly low pricing. A Commerce Department decision in that phase of the case is due in late July.
Two weeks ago China accused the United States of "deliberating provoking trade friction in the clean-energy sector" by setting preliminary duties of 31 percent to 250 percent on billions of dollars of Chinese-made solar panels and cells. Beijing also issued a broad complaint last week at the World Trade Organization against how the United States calculates anti-dumping and countervailing duties on Chinese goods.
In a separate case on Wednesday, the U.S. International Trade Commission, gave final approval to duties ranging from about 21 percent to 46 percent on high-pressure steel cylinders from China in a petition for import protection filed last year by a Texas manufacturer.
He argues China's economy remains deeply unbalanced in favour of investment and light on consumption. The Chinese leadership knows this and it's one more reason why China can't repeat the 'magic' stimulus of 2008 and 2009.
Even in 2011, the latest year in which the China bulls have promised that the long-awaited rebalancing towards consumption had finally begun, there has been no rebalancing. I have argued, of course, most recently in my April 6 newsletter, that absent a massive and unlikely privatization program I cannot even conceive of how rebalancing could occur with growth rates much above 5 or 6%. That is why I have asserted, without evidence of course, that there has been no major rebalancing in 2011. Perhaps the evidence is finally emerging.
9. The great mega-bears chart - This is one scary and self explanatory chart courtesy of BusinessInsider, showing the US, European and Japanese stock markets starting in 1990 and 1979 respectively.
Spooky.
And remember that Japan's stock market fell on Monday to its lowest levels since December 1983. Bonds anyone?
9 (bonus) Capital flight - This chart courtesy of FTAlphaville shows the capital flight in Spain up until the end of March. This is BEFORE the Greek election results and Spain's own budget blowout.
10. Totally Clarke and Dawe - A political scientist studies politics scientifically.
(Updated with correction to #2)
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