Here's my Top 10 links from around the Internet at 12.30 pm today in association with NZ Mint.
As always, we welcome your additions in the comments below or via email tobernard.hickey@interest.co.nz.
See all previous Top 10s here.
My must read today is #2 about how millenials are no longer buying cars and houses. Instead, they're sharing them. I've always wondered why Zipcar hasn't set up in New Zealand, although I suppose Cityhop is the local version.
1. It's the de-leveraging stupid - The Economist has a useful piece here pointing out how pervasive deleveraging is in the UK economy and how difficult it is to either turn around or handle.
Remember too that Britain's overall debt to GDP ratio is over 900% once you take into account all the debt piled up by global banks with operations in the City of London.
That will become British debt when the proverbial hits the spinning object.
If there's one thing to remember in this new world, it's this: 'It's the deleveraging stupid'.
Here's the Economist on the latest drop in lending and various attempts to get it going again:
Folk are choosing to pay off their mortgages for the same reason they are holding off spending. They see darker days ahead and stagnating wages now, and are using the opportunity to pay off their debts. It is a similar story with banks. Having amassed vast debts before the bust, they are reducing their exposure to debt now. Hence the decline in lending. Lending to non-financial companies has fallen nearly 5% on last year; it fell nearly 5% the year before that.
For the British government this is maddening. People are still heaping up savings; banks still don’t want to lend more to businesses. We still hear that giant gurgling noise as demand drains away. All ministers’ plans—to goad banks to lend more, to reinflate the economy, to boost confidence—have all failed and failed utterly. Hence their desperation. What to do? Nationalise RBS? Force lending? Try something more radical?
2. The Cheapest Generation - The Atlantic reports on how young Americans have stopped buying cars because they can't afford it and are more interested in sharing than owning.
A fascinating read. I hope Hugh Pavletich reads it too and ruminates on what cities might/should look like in future. Hint. They're not all sprawely.
The article starts by looking at how Ford and other car makers are trying hard to understand why young people are buying fewer cars. HT Leith at Macrobusiness.
All of these strategies share a few key assumptions: that demand for cars within the Millennial generation is just waiting to be unlocked; that as the economy slowly recovers, today’s young people will eventually want to buy cars as much as their parents and grandparents did; that a finer-tuned appeal to Millennial values can coax them into dealerships.
Perhaps. But what if these assumptions are simply wrong? What if Millennials’ aversion to car-buying isn’t a temporary side effect of the recession, but part of a permanent generational shift in tastes and spending habits? It’s a question that applies not only to cars, but to several other traditional categories of big spending—most notably, housing. And its answer has large implications for the future shape of the economy—and for the speed of recovery.
In the 60 years after World War II, the United States built the world's greatest middle class economy, then unbuilt it. And if you want a single snapshot that captures the broad sweep of that transformation, you could do much worse than this graph from a new Pew report, which tracks how average family incomes have changed at each rung of the economic ladder from 1950 through 2010.
Here's the arc it captures: In the immediate postwar period, America's rapid growth favored the middle and lower classes. The poorest fifth of all households, in fact, fared best. Then, in the 1970s, amid two oil crises and awful inflation, things ground to a halt. The country backed off the postwar, center-left consensus -- captured by Richard Nixon's comment that "we're all Keynesians now" -- and tried Reaganism instead. We cut taxes. Technology and competition from abroad started whittling away at blue collar jobs and pay. The stock market took off. And so when growth returned, it favored the investment class -- the top 20 percent, and especially the top 5 percent (and, though it's not on this chart, the top 1 percent more than anybody).
And then it all fell apart. The aughts were a lost decade for families, and it's not clear how much better they'll fare in the next.
5. No free lunch - The Federal Reserve Bank of Dallas' William White has written a paper here on the unintended consequences of ultra-easy monetary policy. He's a hawk.
In this paper, an attempt is made to evaluate the desirability of ultra easy monetary policy by weighing up the balance of the desirable short run effects and the undesirable longer run effects – the unintended consequences. The conclusion is that there are limits to what central banks can do. One reason for believing this is that monetary stimulus, operating through traditional (“flow”) channels, might now be less effective in stimulating aggregate demand than previously. Further, cumulative (“stock”) effects provide negative feedback mechanisms that over time also weaken both supply and demand.
It is also the case that ultra easy monetary policies can eventually threaten the health of financial institutions and the functioning of financial markets, threaten the “independence” of central banks, and can encourage imprudent behavior on the part of governments. None of these unintended consequences is desirable. Since monetary policy is not “a free lunch”, governments must therefore use much more vigorously the policy levers they still control to support strong, sustainable and balanced growth at the global level.
6. Thank goodness for the mob - Robert Saviano, a journalist under police protection, writes in the New York Times about the surprisingly strong and deep links between the various forms of the Mob and the Too Big To Fail banks that needed their money in the depths of the Global Financial Crisis.
Also, beware of 500 euro notes.
Many of the illicit transactions preceded the 2008 crisis, but continuing turmoil in the banking industry created an opening for organized crime groups, enabling them to enrich themselves and grow in strength. In 2009, Antonio Maria Costa, an Italian economist who then led the United Nations Office on Drugs and Crime, told the British newspaper The Observer that “in many instances, the money from drugs was the only liquid investment capital” available to some banks at the height of the crisis. “Interbank loans were funded by money that originated from the drugs trade and other illegal activities,” he said. “There were signs that some banks were rescued that way.” The United Nations estimated that $1.6 trillion was laundered globally in 2009, of which about $580 billion was related to drug trafficking and other forms of organized crime.
A study last year by the Colombian economists Alejandro Gaviria and Daniel Mejía concluded that the vast majority of profits from drug trafficking in Colombia were reaped by criminal syndicates in rich countries and laundered by banks in global financial centers like New York and London. They found that bank secrecy and privacy laws in Western countries often impeded transparency and made it easier for criminals to launder their money.
In 2006, Spain’s central bank investigated the vast number of 500-euro bills in circulation. Criminal organizations favor these notes because they don’t take up much room; a 45-centimeter safe deposit box can fit up to 10 million euros. In 2010, British currency exchange offices stopped accepting 500-euro bills after discovering that 90 percent of transactions involving them were connected to criminal activities. Yet 500-euro bills still account for 70 percent of the value of all bank notes in Spain.
7. ECB wants to water down capital rules to help European banks survive - Here's Bloomberg with a depressingly familiar report. When the going gets tough, the tough get the regulators to ease the rules.
The European Central Bank is pushing global banking regulators to relax a draft liquidity rule so that lenders can use some asset-backed securities and loans to businesses in a buffer they must hold against a possible credit squeeze, according to three people familiar with the talks.
The ECB, backed by the Bank of France, considers a draft version of the liquidity coverage ratio, or LCR, may hamper efforts to combat the euro-area debt crisis by curtailing lending and making it harder for central banks to implement their monetary policies, said the people, who couldn’t be identified because the discussions at the Basel Committee on Banking Supervision are private.
Faced with sluggish domestic demand and the record cost of fattening animals - due to a steep rise in the price of corn and soybeans as a drought grips top exporter the United States - China's hog producers are being forced to sell their herds.
China's food price cycle is driven in a large part by pork, the country's staple meat, and while it is in abundance now, in about six months meat stocks are expected to fall as a result of the sell-off, resulting in a surge in prices.
Any increase in food prices is expected to push up inflation, which now sits at a comfortable level in Beijing having cooled from last year, but is still one of China's biggest economic concerns given the potential for rising prices to trigger social unrest.
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