Here's my Top 10 links from around the Internet at midday today in association with NZ Mint.
As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.
See all previous Top 10s here.
My must read is #9 on the strange nostalgia for the deflationary depressions of the late 1800s from the Ayn Randist Libertarians of the world. Please excuse the plethora of Mitt Romney cartoons. It was just too easy.
1. Jens Weidemann and the devil - Wolfgang Munchau writes well at FT.com about the extraordinary comments last week from Bundesbank boss Jens Weidemann about Mephisto (the devil) in Faust suggesting money printing to an emperor to solve a shortage of money.
It still makes you shake your head.
The head of Germany's central bank has used one of the most emotive figures in one of Germany's most revered stories to accuse his fellow central bankers of an evil act.
Now that's what I call an independent central banker.
It goes to show what an extraordinary time we are living in.
Here's Munchau, a German, with the meaning and his own criticism of Weidemann:
It should be clear by now what game Mr Weidmann is playing. He is sabotaging the euro through the most effective means he has at his disposal – by reinforcing people’s innate fears about the common currency. He cannot outvote the governing council of the ECB. He is in a minority of one. He also knows that he cannot overturn the ECB’s policy through the legal route. Anybody who decided to drag Mario Draghi in front of the European Court of Justice would lose. Mr Weidmann no longer has any pull over Angela Merkel, the German chancellor he once advised.
But make no mistake: he is very effective in encouraging a creeping euroscepticism among Germans. In doing so, he may well succeed in undermining the chance of the euro’s survival because euroscepticism limits the German government’s political room for manoeuvre. The situation reminds me very much of the way the political debate in Britain turned anti-EU in the early to mid-1990s.
2. A fight at the factory - Some of China's factories are humming right now producing Apple iPhones.
But Bloomberg reports one in Shanxi province had to be shut down over the weekend after a fight broke out between factions of its workforce who live and work at the factory, which employs 79,000 people...
What good can come of one factory employing 79,000 people working in dormitories...
A fight between rival worker groups at a dormitory operated by an outside company broke out at about 11 p.m. last night and escalated before security and police brought the situation under control by about 3 a.m., Woo said. Some workers were arrested, he said without providing details.
“The impact on production should be minor and the lost manufacturing could be made up with overtime,” said Vincent Chen, an analyst at Yuanta Financial Holding Co.“The China government could step in to ensure continued operations if it’s just an issue between workers rather than about conditions.”
3. Just add leverage - Der Spiegel reports (via Reuters) that the new European Stability Mechanism plans to borrow money (!) to leverage up the grants it will get from European countries to bail out European countries that have borrowed too much...
Hmm. Let's borrow money to bail out countries that have borrowed too much money. It's like magic...
This is not going to end well. Funnily enough, Finland is not a fan.
If the ESM gets approval to use the same leverage techniques as the EFSF, it would have a lending power of around 2 trillion euros without countries having to contribute any more capital to the fund.
But these leverage options have not been approved by all euro zone member states and Finland is especially reluctant to agree to them.
4. The Power of Stories - Yale Economist Robert J Shiller has written a lot about 'animal spirits', the magic often referred to as business confidence or consumer confidence that triggers investment or spending decisions.
Here in this Project Syndicate piece he talks about the power of narratives to influence economics and markets, and even well beyond their real significance. He uses the Greek legend as an example.
Psychologists have stressed that there is a narrative basis to human thinking: people remember – and are motivated by – stories, particularly human-interest stories about real people. Popular stories tend to take on moral dimensions, leading people to imagine that bad outcomes reflect some kind of loss of moral resolve.
The European crisis began with a Greek meltdown story, and it appears that the entire global economy is threatened by events in a country of only 11 million people. But the economic importance of stories bears no close relation to their monetary value (which can be measured only after the fact, if at all). It depends, instead, on their story value.
5. Hollowing out the middle class - Chrystia Freeland writes at Reuters about how the Internet revolution has hollowed out the middle classes of the developed world.
John van Reenan, professor of economics and director of the Center for Economic Performance at the London School of Economics and Political Science, is one of the foremost students of this transition. He thinks the biggest impact of the e-commerce revolution, and its counterparts in sectors like the law or accounting, won’t be on the number of jobs in the economy; it will be on how well they pay.
“The worry isn’t the quantity of jobs; it is the quality of jobs,” he said in a telephone interview from his base in London. “Other jobs will appear, but they may not be very attractive jobs.”
Van Reenan believes this trend has already begun, with deep social and political consequences. “It is a continuation of the hollowing out of the middle class, which we have seen,” he said. “People will find it harder to support a middle-class family.”
6. Greece's fresh budget hole - Der Spiegel reports Greece's budget deficit of 20 billion euros is twice as big as forecast. Again. HT ZH.
According to a preliminary Der Spiegel finding, the troika of European Commission, European Central Bank and International Monetary Fund reported that the government of Prime Minister Antonis Samaras is missing currently around 20 billion euros - nearly twice as much as last admitted. Only if the funding gap is closed, the next EU tranche will be transferred to Athens.
7. 'The Fed was tightening' - Ambrose Evans Pritchard writes the US Federal Reserve was actually tightening earlier this year before it announced QE Infinity.
The Fed has been tightening this year, a fact overlooked in the Weimar/Zimbabwe slapstick of the last two weeks. Yields on ten-year inflation-indexed Treasuries or TIPS -- a proxy of inflation expectations -- have crashed zero to minus 0.7pc since January. If this is the start of hyperinflation, nobody told the bond markets. The Fed's balance sheet has shrunk by $120bn to $2.82 trillion since February as the old schemes run off -- the `TALF' and suchlike.
Assets reached a plateau of around 16pc of GDP two years ago and have not changed much since then. This is exactly the same as in 1951 before the Fed's last great experiment was unwound. It is also lower than the balance sheets of the ECB, Bank of England, Bank of Japan, or -- arguably -- China's central bank.
8. Oligopololistic capitalism - Philip Pilkington writes at Naked Capitalism about the strange nostalgia for deflation among the Libertarian supporters of Ayn Rand. They include Mitt Romney's vice presidential running partner Paul Ryan.
The most popular aspect of the libertarian doctrine today is probably the idea that deflation is not such a bad thing – indeed, it may even be a morally purifying cure. Uncomfortable – like a cold shower – but necessary to rid a gluttonous populace of its worst excesses.
The economic argument among actual libertarians for this view runs broadly that prices in a competitive economy should generally be tending downwards rather than upwards. The rational argument – as is typical of extremist ideologies – for the most part masks a more deeply embedded emotional appeal. Simply put, the argument plays to the hoarding impulse so prevalent among gold-bugs, who appear to overlap strongly with libertarians.
While it would be too much of a distraction to go into the origin of the compulsive hoarding impulse here, it should simply be noted that among right-wing libertarians it is often mixed up with saving. Not only are these two distinct concepts within the sphere of economics – hoarding being a removal of wealth from circulation and saving being the deployment of present wealth to procure future wealth – but they are generally recognised as distinct concepts in psychology, both popular and medical. Even children can distinguish between Scrooge and true capitalists.
9. Keep an eye on Spain - The Catalan independence movement is getting a run on in Spain. The Spanish military are not keen. I don't want to think too hard about where civil war in Spain led in the 1930s.
Here's Wolf Richter at BusinessInsider.
A discussion of the nitty-gritty of independence has broken out. Hot topic: the distribution of central government debt. Would Catalonia have to carry 20% or 16%? Or none because Spain issued the bonds and not Catalonia? Would Catalonia be better off within Spain or as independent state? Would it even be financially viable? Rumors are swirling that members of the governing coalition have asked the European Commission if Spain can legally stop Catalans from seceding, and if it can expel an independent Catalonia from the EU via its veto power. As there is no law that would allow secession, there is also no law regulating it. So everything is up in the air. But the fact that this is getting serious attention, shows just how far the process has already gone.
And the military staked out its role. Colonel Francisco Alaman promised to crush the “vultures” if they chose independence. “Independence for Catalonia? Over my dead body,” he said. “Even if the lion is sleeping, don’t provoke the lion, because he will show the ferocity proven over centuries.” Words of the crazed fringe? Apparently not. “Deeply-rooted thinking in large parts of the armed forces,” explained retired Lt-Gen Pedro Pitarch.
10. Totally Jon Stewart on Mitt Romney and the 47%.
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