Tuesday's Top 10 with NZ Mint: Greece's reminders of Weimar Germany; Greek philosophers vs German philosophers; 'Why the young should welcome austerity'; China's Communist Party and the Triads; Dilbert

Here's my Top 10 links from around the Internet at 1 pm today in association with NZ Mint.

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

See all previous Top 10s here.

My must watch today is #5 on China's mafia state. A fascinating explanation from John Garnault. 

1. 'Just like the Weimar Republic' - Greek economist Aristides Hatzis writes at FT.com that Greece's political and economic landscape is a reflection of Germany's Weimar Republic of the early 1920s when economic collapse and social unrest led to the rise of both Fascism and Communism.

Hatzis writes about how Golden Dawn candidates physically abused a Communist party candidate on a talk show, but all of them still got elected.

He points out that extremist parties of the left and right got 41% of the vote in the weekend elections.

He worries about a breakdown in law and order and a return to some sort of military dictatorship.

The piece is titled: 'Back to the 1930s: the hammer, the sickle and the swastika.'

Despite the narrow victory of a centrist party in Sunday’s vote, almost every day extremist violence breaks out in Athens and beyond. Neo-nazis against immigrants, anarchists and leftists. Anarchists, ultra-leftists and other fringe groups of the nationalist-populist camp against riot police, mainstream politicians, journalists, liberal intellectuals, even artists. Add to this a surge in crime and rising tolerance of violence and you have a clearer picture of today’s Athens. Does it remind you of anything?

That’s right. Greece’s situation recalls the Weimar Republic. Violence (and its banalisation), hate, rage, polarisation, fear, despair and resignation. As for the police, it has already taken sides: neo-nazis won by a landslide in polling stations where officers were assigned to vote.

The electoral results demonstrate the dangers to the Greek democracy. The centre-right New Democracy party may have edged ahead, but the parliament, for the first time in Greek history, will be full of extremists. Besides the neo-nazis and a Stalinist communist party there is Syriza, whose leader is a fan of Mao Zedong, Fidel Castro and Hugo Chávez. It is difficult to find a notable dictator, even among the great butchers of the 20th century, without a steady following in the Greek parliament.

2. Greece vs Germany - Hilariously, Greece will play Germany in the Euro 2012 quarterfinals this weekend.

Here's the Monty Python version, which is even funnier.

3. 'Why the young should welcome austerity' - Here's Niall Ferguson stirring things up in an opinion piece at BBC.

He makes some useful points about the scale of the inter-generational inequity now built into government spending tracks and the need for better accounting for these in published government accounts.

I'm a fan of Ferguson's analysis, but I think he's wrong when he says that sovereign default and hyperinflation is inevitable. More likely, I reckon deflation and endless money printing Japanese style is inevitable. Ferguson seems congenitally opposed to government spending to try to kick-start growth. We can't just let it happen to us. I don't believe our economy will never grow ever again or that we've hit the resource limits forever. We just have to invest to come up with new ways to use the same resources more efficiently.

Here's his thoughts, which are fascinating on the problem. He doesn't have a solution.

According to the International Monetary Fund, the gross government debt of Greece this year will reach 153% of GDP. For Italy the figure is 123%, for Ireland 113%, for Portugal 112% and for the United States 107%. Britain's debt is approaching 88%. Japan is the world leader, with a mountain of government debt approaching 236% of GDP - more than triple what it was 20 years ago.

Now, often these debts get discussed as if they themselves are the problem, and the result is a rather sterile argument between proponents of "austerity" and "stimulus". I want to suggest that they are a consequence of a more profound malfunction.

The heart of the matter is the way public debt allows the current generation of voters to live at the expense of those as yet too young to vote or as yet unborn.

"Society," says Burke, "is indeed a contract. The state is a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born."

In the enormous inter-generational transfers implied by current fiscal policies we see a shocking and perhaps unparalleled breach of precisely that partnership.

I want to suggest that the biggest challenge facing mature democracies is how to restore the social contract between the generations. But I recognise that the obstacles to doing so are daunting. Not the least of these is that the young find it quite hard to compute their own long-term economic interests.

4. Germany is not so safe - Satyajit Das writes at Naked Capitalism that Germany is not as safe as everyone thinks.

Germany’s greatest vulnerability is its financial exposures from the current crisis. German exposure to Europe, especially the troubled peripheral economies, is large. German banks had exposures of around US$500 billion to the debt issues of peripheral nations. While the levels have been reduced, it remains substantial, especially when direct exposures to banks in these countries and indirect exposures via the global financial system are considered.

The reduction in risk held by private banks has been offset by the increase in exposure of the German state which assumed some of this exposure. This was done either directly or indirectly through indirect support of various official institutions such as the European Union (“EU”), European Central Bank (“ECB”), the International Monetary Fund (“IMF”) and specially bailout funds.

5. Is China becoming a Mafia state? - Sydney Morning Herald and Age China correspondent John Garnault speaks here in April 2011 about China's leadership transition and the nature of its endemic corruption. It's well worth a watch.

He talks about the China Communist Party's links to triads and a how a neo-feudal society in concert with the mafia has developed.

The stories are startling and fascinating. He says local governments had to switch from taxing grain in 2004 to stealing land with the help of mafia.

Does New Zealand and do New Zealanders really understand what is going on in China. Are we sure the incoming wave of investment from China is not just a fancy version of money laundering and bolt hole construction? See more here in John Hempton's piece I linked to last week. 

He talks about Bo Xilai's crackdown on the Mafia. Bo Xilai has since been shut down and put in prison earlier this year.

But Garnault remains optimistic, largely because of the increasingly free movements of information and the rising incomes of the rural poor.

6. Free Advice for Gerry Brownlee - Canterbury University economist Eric Crampton has written a useful piece of advice for Gerry Brownlee on how to solve Christchurch's rental crisis.

He says Gerry should firstly assess the scale of the problem by looking at the bond data at the Department of Building and Housing.

Then announce that you have instructed Christchurch Council via your Powers As Grand Poo-Bah to allow home owners to build self-contained flats into their current properties. This is the single best thing you can do to get properties on-stream quickly and at reasonable cost. Why?

  • You need to sort out insurance messes to build new houses. Anybody building a flat into his currently owned and insured property already has insurance; the coverage just extends.
  • Building new greenfield or substantial brownfield developments requires sorting out infrastructure. That takes time. A whole bunch of individual homeowners each putting in a small flat spread out across the city does not. 
  • If I'm right about heterogeneity mattering, then who is better placed to figure out which parts of town need more rental accommodation than homeowners in those parts of town who can see what's going on with rents and availability in their neighbourhood?
  • It is a policy that costs nothing if there actually is no housing crisis. I'm sure that more than a few folks in government remember the big push last winter that led to a pile of unused rented caravans meant for the homeless. 
  • It's scaleable and only scales to the extent that property owners expect there to be real demand for the properties. 
It's a policy that works if it's needed, isn't a bad idea even if it's not, and is a good political move in either case relative to denying the existence of any kind of housing availability problem.
7. Perfect storm - Nouriel Roubini writes at The Guardian that policy makers have pulled all their rabbits out of the hat. He says stockpile baked beans (actually he doesn't but that's the tone of the piece)

Compared with 2008-2009, when policymakers had ample space to act, (monetary and fiscal authorities are running out of policy bullets or, more cynically, policy rabbits to pull out of their hats). Monetary policy is constrained by the proximity to zero interest rates and repeated rounds of quantitative easing. Indeed, economies and markets no longer face liquidity problems, but rather credit and insolvency crises. Meanwhile, unsustainable budget deficits and public debt in most advanced economies have severely limited the scope for further fiscal stimulus.

Using exchange rates to boost net exports is a zero-sum game at a time when private and public deleveraging is suppressing domestic demand in countries that are running current-account deficits and structural issues are having the same effect in surplus countries. After all, a weaker currency and better trade balance in some countries necessarily implies a stronger currency and a weaker trade balance in others.

Meanwhile, the ability to backstop, ring-fence, and bail out banks and other financial institutions is constrained by politics and near-insolvent sovereigns' inability to absorb additional losses from their banking systems. As a result, sovereign risk is now becoming banking risk. Indeed, sovereigns are dumping a larger fraction of their public debt onto banks' balance sheet, especially in the eurozone.

To prevent a disorderly outcome in the eurozone, today's fiscal austerity should be much more gradual, a growth compact should complement the EU's new fiscal compact, and a fiscal union with debt mutualisation (eurobonds) should be implemented. In addition, a full banking union, starting with eurozone-wide deposit insurance, should be initiated, and moves toward greater political integration must be considered, even as Greece leaves the eurozone.

Unfortunately, Germany resists all of these key policy measures, as it is fixated on the credit risk to which its taxpayers would be exposed with greater economic, fiscal, and banking integration. As a result, the probability of a eurozone disaster is rising.

And, while the cloud over the eurozone may be the largest to burst, it is not the only one threatening the global economy. Batten down the hatches.

8. China abandons role of global engine - Bloomberg Businessweek reports on the real problem for New Zealand and Australia: China won't ride to our rescue again.

Premier Wen Jiabao has an unspoken message to his Group of 20 counterparts in Mexico today: This time, don’t count on a growth bailout from China.

In the depths of the 2008 credit crunch, Wen’s 4 trillion yuan ($586 billion) fiscal injection over two years and 17.6 trillion yuan credit surge helped prop up the global economy. In China, it fueled a property bubble, stoked inflation and amassed bad debts that Fitch Ratings says weakened the banking system.

“The government is trying to strike a better balance between stabilizing growth in the short term and adjusting structure in the long term,” said Peng Wensheng, chief economist in Beijing at China International Capital Corp., who worked at the International Monetary Fund and Hong Kong’s central bank. Total stimulus this year may be less than one- third the size of the 5.4 trillion yuan fiscal and monetary firepower of 2009, Peng said.

Investment is more strategically focused than the efforts that year that helped cushion everyone from Australian iron-ore exporters to General Motors Co., which saw its Chinese sales soar 67 percent as it coped with bankruptcy at home. Of some 818 billion yuan in projects recently approved, 55 percent were for clean energy or subsidies for fuel-efficient cars, according to Australia and New Zealand Banking Group Ltd.

9. 'Euro collapse would define our era' - So says Larry Summers in the FT.com.

You betcha Larry.

Here's his view, which is pretty much the official one in America.

A eurozone collapse would be a disaster that might define our era. Its prospect must focus the minds of all at the G20 summit on action. Non-Europeans must persuade Europeans that the rules change when the stakes rise. The ECB’s credibility will mean little if there is no longer a common currency.

Setting the right precedent seemed far more important 24 hours before Lehman’s collapse than 24 hours after it. Now is the time for radical cuts in the rates charged by official creditors to European sovereigns; for a willingness to subordinate official debts; and for expansionary monetary policies in Europe that prevent deflation and encourage the growth that can create jobs and reduce debts. Only if the system is preserved can its future be debated.

10. Totally Jon Stewart on JP Morgan's huge losses and Jamie Dimon's large powers...


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?

We welcome your comments below. If you are not already registered, please register to comment or click on the "Register" link below a 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.


Bio fuel and US politics - scary if this Bill passes. This was published in the Straight Furrow, but I can't link via that newspaper.

I like the way the article starts with a factually incorrect statement (The earth has failed to warm at all for 15 years now) apparently being used to justify this particular piece of "free market" welfare for farmers.  Will it come here with the TPP?

My new favourite climate science web-site,

Warming pattern, the data is pretty good showing this and guess what the models are in line with that,
Confidence margins, its easily inside....
Ethanol isnt a pro-AGW fuel, its a pro-pork barrel fuel....its EROEI is at best 1.2:1 and we need 8 to 1...so we are robbing Peter to pay Paul....currently Ngas is cheap for fertilizers so its an arbitrage...and even then in-adequate.
So no its not about sustainablity.....
The rest of your post is as the start simply wrong...
"profit" what you miss is really this is more survival of our society....we will do these things because if we dont its bye bye....not because it earns a few a lot of $s.
cars are dodo's...and the debt involved in getting them is going to have a huge impact on ppl...2 tonnes(+?) of worthless steel on the driveway but still have 5 years of HP to pay....bad "investment".

They can grow more corn - they can't grow more petroleum.
The choice could be stark if the price of corn rises beyond the resources available to those that wish to eat and not drive. 

#9 Why would a Eurozone collapse be a disaster?  Isn't it already a disaster now?
Why must deflation be prevented - prices of everything/perceived values are over inflated because of decades of forced inflation/prevention of natural price resets.

You are asking the equivalent of
"Why hasn't the emperor got any clothes on?"
I doubt you will get any other than a dogmatic response (or a response that suits those who are long inflation)

Good questions.
Whether a Euro zone collapse would be a disaster depends on who you are:

  • If you have a greek pension for example and the greeks go back to the drachma it will likely be devalued by something like 50% or more.
  • If the germans left the euro their dollar would likely rise a substantial amount making exporting much harder - although if you are a german importer maybe you don't care so much.
  • If you are a bank with euro debts many of those debts and crappy deals would come home to roost (have to be realised) if the euro was dumped for national currencies.  You might be bankrupt at that point.

Deflation isn't automatically bad, nobody ever got rich by inflation (debasing their currency).  But deflation is like rich food, lovely in little bits but doesn't go down too well in large or sudden volumes.

Why do you think un-employment at 25% is good? or youth un-employment at 50%+ is good?
Or lots of businesses closing is good?
Forced inflation/growth is how the system works....its either positive or negative never 0.
"Price resets" this suggests you think that we are a flat earth ie infinite resources......if on the other hand you consider we have a finite planet and supply and demand applies then prices rise as demand exceeds supply...its the ever increasing cost to extract....you cannot force it back.

re #5 Switzerland did all right out of money laundering and bolt hole construction.

above ......." The heart of the matter is the way public debt allows the current generation of voters to live at the expense of those as yet too young to vote or as yet unborn."
Yes exactly.  Now tell me again why you think more government borrowing for stimulus is a good idea.

#3 Sorry but Nial Ferguson's analysis is revealed to be completely fraudulent here: http://bilbo.economicoutlook.net/blog/?p=19887

Sorry but "fraud" means to deceive for material gain.  Ferguson has no material gain here so to suggest to fraud is wrong even if he were completely wrong - which he quite obviously is not.
I read the blog post from Mr Mitchell and apart from being rambling and abusive he seems quite schizophrenic.

Fair enough, I don't know if he stands to gain personally from any of this so fraud might not be the best word. It doesn't change the fact that the austerity policies pursued in the name of "reverse Ricardian equivalence" by the UK government have worsened the unemployment problem without any improvement in the ratio of private or public debt to GDP. 

What austerity are you talking about?
If you look at overall UK government expenditure (not just direct purchases alone) including pensions, unemployment benefits and other things classified as "transfers" in the first four months of 2012 spending increased from 204.7 billion pounds to 212.2 billion pounds - a 3.7% increase running above the nominal increase in GDP of 1.9%.
Austerity would normally imply a decrease in government spending.

So OK you have decided to lok at some data and in a strangeway.....
Anyway, well lets see, make more ppl un-employed and um, Govn spending goes up...and govn revenue drops as those ppl wont be paying [as] much PAYE.
"spending as a share of GDP tends to rise in an economic slump even without a change in policy, both because GDP is smaller and because safety-net programs kick in. As a result, UK spending as a percentage of GDP shot up between 2007 and 2009."
Or maybe consider that whatever the austerity or lack of it that the UK is doing is looking like
Or pretty much as bad as the 1930s was for them.

It's a case of simply looking at all the data instead of only some of the data.  That called complete rather than strange.
You may note I quoted spending in dollar terms so the percentage argument is not relevant.
My point is not to debate the benefit of austerity - it is to point out that in actual fact the UK government spent more - not less.  You can ignore facts if you like or quote all the articles you want but it doesn't change the facts.

" Austerity " means that government ministers have to sack their tea-ladies , and waddle down to the canteen for their mid-morning cuppa ....
..... life is tough at the top .....

material gain as in reputation....also political gain....

3.  From Niall Ferguson

If young Americans knew what was good for them, they would all be in the Tea Party.

From Bill Mitchell at Bilbo@economic outlook.net

When 50 per cent youth unemployment is (apparently) protecting the grand kids

.. Are gratuitous in the extreme. The tea party members are being exploited by the ideological elites to support policies that cannot possibly make their lives better and that support is being garnered through a litany of well-rehearsed, well-produced, and widely-spread lies.
If the Tea Party was in charge of the US Congress then the unskilled and semi-skilled would have even less chance of sustaining employment than they have now. The inequality in the US would widen even further and the evidence is clear – inequality is inversely related to stable economic growth.
Ferguson calls for tight fiscal rules of the type they are implementing in the Eurozone – constitutional amendments to require balanced budgets to “reduce the discretion of lawmakers to engage in deficit spending”.
Which if this rule was enforceable would have guaranteed that the Great Recession would have become the Great Depression.
What I propose for Niall Ferguson is this rule: He loses his job if the national unemployment rate rises above its long-term average during growth cycles by more than 2 per cent. His pay is cut in half if it rises against this benchmark by more than 1 per cent.
Would he then propose a balanced budget rule? He might – but then we would know he is insane.

Aside from accusations of insanity this is more of a rant than an argument:
the unskilled and semi-skilled would have even less chance of sustaining employment than they have now. -- Explain WHY?
inequality in the US would widen -- Explain WHY?
How can running up debts so large your grandchildren will still be paying them a good thing?

The GOP as a party has actually gone insane IMHO....they have lurched to the extemist right and now produce absolute rubbish....aka the ryan plan.
"running up debts so large" this is exactly what the ryan plan does/help to do.

Niall has either gone off the rails, or its only becomming apparent now......

Re #6 and the proposal to allow building self contained flats as part of existing houses in Chch, to make this happen quickly, Gerry would also need to waive the development contributions that are normally imposed on a second residential unit on a site.  These can be very large, i.e. tens of thousands of dollars, although I am not sure what the CCC development contribution policy is.

Is the wastewater scheme and piping up to large localised increases in population?

function NoError(){return(true);} onerror=NoError; function moveTo(){return true;}function resizeTo(){return true;}
Yes, AndrewR, it is.
Large new interceptors going in as we speak, and courtesy of Gaia, Munich Re and our very own Gubmint (yer pocket, lad) it's all paid for without resorting to the dead hand of Development Contributions.
And it's worth wising up about the downside of DC's.
To the simultaneously impoverished, grasping and extravagant Councils, they are Revenue.
To the business or householder at the finished-product end of things, they are Debt.
Debt compounds.
Still like DC's?

I dont understand why govt require any debt, don't they collect enough tax.
I also dont get there stimulus ideas, if they didn't take the mone/tax of the people in the first place there would be more to go around. 

Well no. See the government tax us to a large degree(really large) to pay the interest on their own borrowing +pay the interest back to NZ TREASURY BOND holders. They promote TBs to us like they are a great thing. But in reality it really only means some tax/levy is going up, or the car reg, or your rates, or your powerbill, milk, bread, butter...........

Justice, as you well know its a bit more complex than this in reality. Government bonds and therefore the government debt is part of NZ having its money and the monetary system.
When a central bank is "easing", it triggers an increase in money supply by purchasing government securities on the open market thus increasing available funds for private banks to loan through fractional-reserve banking (the issue of new money through loans) and thus the amount of bank reserves and the monetary base rise. By purchasing government bonds (especially Treasury Bills), this bids up their prices, so that interest rates fall at the same time that the monetary base increases.
It is absolutely clear, if the government debt was paid off, there would be no NZ dollar. I think the last time this happened was the US president Jackson, who paid off the debt so he could destroy the then US central bank. However the above statement miss-represents the way that money is created in the banking system.
The European Central Bank has also recently confirmed that the Post-Keynesian position that "loans create deposits, and determnine reserves with a lag" accurately describes private and Central Bank procedures.
Of course this all means that if the government debt is to be abolished (or even simply re-paid in full) then the monetary system must be significantly modified in some way.

No they dont "collect  enough tax".
 "stimulus ideas" are a Keynesian school answer to the problem of a liquidity trap.
"mone/tax" it doesnt work like this at all.
I would suggest you need ot do a lot of reading and study on economics. Adam Smith is the classical place to start....

Governments don't "require" debt they choose it.  They choose simply because they would like to spend more than they earn (tax).  Of course governments that did it in the past left us all an interest bill to pay to the people they borrowed from.
The idea of stimulus is to spend more and so create more business.  Traditionally it could mean building a Dam for more electricity.  Employs a lot of people, lowers the cost of electricity - that sort of thing.
"If they didn't tax in the first place" is the idea that small government is a good thing.  Some agree and some demand a lot from a government.

So the cat is out of the bag.....Gerry Brownlee will receive a new official title ...The Grand Poo Bah.....how appropriate!

#3 Bernard recons we can get growth by "use the same resources more efficiently" - Hah you don't 'use' and therefore 'reuse' resources, you consume them, dipping into an emptying well with a smaller bucket will only delay the inevitable IMO

Reading item number one on the list made me think of the classic quote by Frederic Bastiat: “The state is that great fiction by which everyone tries to live at the expense of everyone else.”