Here's my Top 10 links from around the Internet at 11 am 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 chart is #3 showing China's population structure. Look at it for a few minutes and think. Then take panadol.
1. 'Halve the leverage' - Bloomberg reports Former Federal Deposit Insurance Corp Chair Sheila Bair has written a book saying US banks should halve their leverage from around 25 times equity to more like 13 times equity to fundamentally improve the safety of America's banking system.
By extension, she's talking about the global system.
New Zealand banks are leveraged between 10 and 20 times capital, with a weighted average of 12.7, according to our measure.
Some of the worst leverage levels are in Europe, and that hasn't even started to be solved.
Bair points out the bank lobbyists are always pushing for more leverage.
She worries the lobbyists will win.
Leverage is at the root of most of our problems. Particularly in Europe.
The European Union, as it moves to implement the Basel rules, has wavered on leverage, saying it needs to study the potential impact before committing. The leverage ratio would forceEuropean banks to raise additional capital at a time when they’re struggling with a sovereign-debt crisis.
“Europeans’ failure to have a leverage ratio is why they’ve had more problems than us,” Bair said in an interview last week. “How much leverage French and German banks have is astounding.”
2. 'Nice Libor. Hahaha!' - Why is it traders and bankers always let their hair down in emails and instant messages?
Bloomberg reports on what Royal Bank of Scotland's Libor-fixing traders said to each other as they rorted the system. It's up there with 'Done for you Big Boy' in the Barclays scandal.
Royal Bank of Scotland Group Plc trader Tan Chi Min told colleagues the firm was able to move global interest rates, according to court filings. Transcripts of internal RBS instant messages were included in a 231-page affidavit filed Sept. 19 by Tan, the bank’s former Singapore-based head of delta trading for Asia, who’s suing Britain’s third-biggest lender by assets for wrongful dismissal after being fired last year for allegedly trying to manipulate the London interbank offered rate, or Libor.
“Nice Libor,” Tan said in an April 2, 2008, instant message with traders including Neil Danziger, who also was fired by RBS, and David Pieri. “Our six-month fixing moved the entire fixing, hahahah."
3. The chart that should make China bulls more cautious - I'm looking at you Prime Minister Key.
This chart, courtesy of Econbrowser, shows how unbalanced the Chinese population is and how a falling population relatively soon will slow economic growth.
hina has more 45- to 50-year-olds today than it has 5- to 10-year olds. That means that in another decade or so, the number of people retiring will be greater than the number of new young people coming into the labor force. For the last ten years, the number of new 20-year-olds was greater in each succeeding year. For the next ten years, the number of new 20-year-olds is going to be fewer in each succeeding year.
A slower growth rate and eventual outright decline in the number of people working has to translate into a slower growth rate for total GDP. It also will lead to a number of other changes, such as an increase in wages as compensation to the scarcer factor is bid up. That in turn will undermine the current basis for Chinese competitive advantage, and could mean lots of changes for Chinese society.
4. It's already hitting us - The Guardian reports on a new survey estimating climate change is already costing the global economy US$1.2 trillion a year and killing millions.
Climate change is already contributing to the deaths of nearly 400,000 people a year and costing the world more than $1.2 trillion, wiping 1.6% annually from global GDP, according to a new study.
The impacts are being felt most keenly in developing countries, according to the research, where damage to agricultural production from extreme weather linked to climate change is contributing to deaths from malnutrition, poverty and their associated diseases.
Air pollution caused by the use of fossil fuels is also separately contributing to the deaths of at least 4.5m people a year, the report found.
The 331-page study, entitled Climate Vulnerability Monitor: A Guide to the Cold Calculus of A Hot Planet and published on Wednesday, was carried out by the DARA group, a non-governmental organisation based in Europe, and the Climate Vulnerable Forum. It was written by more than 50 scientists, economists and policy experts, and commissioned by 20 governments.
5. Blame the mining boom investment - FTAlphaville reports on ANZ research on the surge of Foreign Direct Investment into Australia in recent years that has boosted the Australian dollar.
Sounds a lot like the surge of foreign capital into New Zealand in the last 18 months in the form or reinsurance payments.
The FDI boom has resulted in Australia’s first basic balance surplus since the early 1970s (the basic balance is the current account plus FDI). This is genuinely a different environment for the AUD. Typically low-yield, current account surplus currencies run basic balance surpluses (think Norway, Switzerland or Japan at one point). For a commodity exporter to do so is almost unheard of. A basic balance surplus currency will tend to be reasonably stable, and less cyclical, than currencies where portfolio flows dominate the capital account.
6. Inventories piling up in China - FTAlphaville reports on research from Nomura's Kevin Gaynor showing massive inventory buildups in China and elsewhere, suggesting trouble ahead for the global economy. It's worse in China than in late 2008...
We all know inventories are piling up in China – the FT and then the NYT wrote about it, and it’s been showing up in the PMIs for some time. But they’re REALLY piling up, by this measure — far worse than in the 2008 when there was a much better argument that no-one could’ve seen it coming. Plus, stock is piling up everywhere — even Japan, which invented ‘just in time‘ inventory management, and Taiwan, which apparently also tends to be good at the practice.
What it means is if demand turns up soon, the destocking will be unpleasant. If demand doesn’t turn up soon…
7. Baconmageddon - America is in turmoil. Pork prices are rising. Supply is dwindling.
The Los Angeles Times reports a shortage of pork because of the worst drought in 50 years means there will be bacon shortages there from early next year...
Might want to get your fill of ham this year, because "a world shortage of pork and bacon next year is now unavoidable," according to an industry trade group. Blame the drought conditions that blazed through the corn and soybean crop this year. Less feed led to herds declining across the European Union “at a significant rate,” according to the National Pig Assn. in Britain.
And the trend “is being mirrored around the world,” according to a release (hat tip to the Financial Times).
8. Bailouter in Chief - Sheila Bair's book sounds like a cracker.
She also has a go at Treasury Secretary Tim Geithner for being too keen to bail out his banker mates.
The Obama and Bush administrations largely ignored the needs of beleaguered homeowners while focusing too narrowly on the well-being of Wall Street during the worst financial crisis since the Great Depression, according to a new book by a top participant in the government’s response.
The book, “Bull by the Horns,” by former Federal Deposit Insurance Corp. chairman Sheila Bair, says both administrations’ top advisers paid little more than lip service to helping borrowers at risk of foreclosure, instituting programs they knew were likely to fail and ignoring her recommendations about how to improve them. By contrast, she said, senior advisers were willing to go to great lengths to rescue the nation’s top banks — without demanding accountability from top financial executives.
A Republican who became a champion among liberals for her firm stance toward Wall Street and noisy presence in favor of homeowner assistance, Bair reserved her sharpest words for Treasury Secretary Timothy F. Geithner, who served as president of the Federal Reserve Bank of New York in the lead-up to the financial crisis.
After she recommended that President Obama name former Federal Reserve chairman Paul Volcker as Treasury secretary, she wrote, Obama’s decision to tap Geithner was “a punch in the gut.” She considered Geithner the “bailouter in chief” because he wanted to make unconditional guarantees to top banks to keep them afloat without demanding much in return.
9. Really big data - This Cisco graphic talks about the dawn of the age of the Zettabyte.
10. Totally Jon Stewart on the US Presidential Election.
Watch it and shake your head. The stuff Romney is saying is extraordinary. Obama is back in.
38 Comments
China's inventories ?? What inventories ?? You mean the Steel Bars at the warehouse pledged to 5 banks ?? If all the banks are to take back the inventories of steel bars there would be a shortage !!
Same applies to Copper and any other industrial raw materials that you can think of.
It even applies to Land.....multiple ownerships and colleteralised land by multiple Banks is common feature in China. Now that the value is declining, all the ponzi scheme is being exposed.....China is seeing the biggest wave of "disappearing" businessman and suicides the last decade....it's even bigger than that in 2008/9.
Pedantic IT geek spin **BUT** if they implement any kind of multicast technology for video distribution on the internet (which is built into IPv6) -- then -- although we may view that amount of data we won't actually be transferring anything like that amount of data over the internet.
WSJ - The Magnitude of the mess we are in.
US Focused but very sobering with consequences for all of us:
http://online.wsj.com/article/SB10001424052702303561504577497442109193610.html
"Did you know that annual spending by the federal government now exceeds the 2007 level by about $1 trillion? With a slow economy, revenues are little changed. The result is an unprecedented string of federal budget deficits, $1.4 trillion in 2009, $1.3 trillion in 2010, $1.3 trillion in 2011, and another $1.2 trillion on the way this year. The four-year increase in borrowing amounts to $55,000 per U.S. household."
While it might be tempting to conclude that we can just tax upper-income people, did you know that the U.S. income tax system is already very progressive? The top 1% pay 37% of all income taxes and 50% pay none.
The trouble is that wealth and income are quite separate things. Interest is the mechanism that is used to redistribute wealth from the bottom to the top, that wealth being hard assets and nothing to do with income. Put it this way, if you were the beneficiary of interest payments(unearned income) then why would you keep your wealth in the asset class that devalues by the very same mechanism that provides your income? The bottom 50% don't need to pay tax as they are already paying interest. The net result to them is the same, only the recipient changes.
If you want to tax the "rich" you don't target income, find where their assets are and tax that. Won't happen though.
Most people are resisting the fact that interest works in this manner, but it isn't new thinking. Even Aristotle and Plato commented on it. Until this is accepted and understood then you can't advance to the next step :-)
I have tried to model it.
(M.V)+i=P.Q shows the process and allows predictions to be made such as interest rates must go down and that prices(in aggregate) must go up. The percentage of money that is servicing debt increases over time which lowers velocity. Money has to keep being printing in ever increasing quatities.
That is true, but I only think it is beneficial to a certain point. Tax is still unearned income as the recipients are not generally productive. But at least tax doesn't detract from velocity, until it is used to pay interest somewhere anyway. We do have an ugly situation where out tax is being used to pay interest both at local and national level.
Yep agree, haven't spend enough time thinking about that factor.
Here is an interest article by Charles Hugh Smith where he talks about velocity and states "It's difficult to see how these forces could generate inflation."
The answer to that is of course a rise in prices. Hyperinflation should rear it's head eventually, but given the luxury of time delay that the authorities can create it is still pending.
... and did you know Ralph that those deficits are just cash accounting, if you add in the accural for the increase in liabilities (as is normal GAAP accounting and you would have to do in any normal entity) the real deficit is 4-5 trillion a year? Not the 1.whatever you mention. ...and the total liability per taxpayer is over 1 million USD?
Rgds,
Yes, it's amazing in that respect. However, I am of the opinion that the likelihood of a contigent liability begin actually paid is inversly proportional to its size.
That is to say I have no expectation the full GAAP amount will ever be paid so don't worry about that so much.
the least politically suicidal is just to keep printing (and buying MBS which the banks then use to buy treasuries...)... raising taxes is suicidal in the US as wall street run government sacs... uh i mean washington..., so cant see them doing that in any meaningful way, nor can I see that even working as corporate america will just further off shore and export into the US - goodbye more jobs.... hello depression... (the profits of which are tax free until that money is brought back into the US... which of course it isn't now so cant see that happening if taxes are even higher... infact nowdays corp america is sitting on over a trillion in taxes due because of this - last time they did a deal with the white house and got tax breaks to pay 5-6 cents in the dollar on the basis of bringing the money back to create jobs - but all they did was buy back their own shares and collect a fat performance bonus)...
NZ is largely another ball game, if the US, UK and Euro zone out of a scale of 1-10 (10 being the worse) they are a 10, NZ and Australia about a 6.
Richard W. Fisher of the US Federal Reserve in his speech to the Harvard Club in NY arguing the limits of Monetary policy.
http://www.dallasfed.org/news/speeches/fisher/2012/fs120919.cfm
"The truth, however, is that nobody on the committee, nor on our staffs at the Board of Governors and the 12 Banks, really knows what is holding back the economy."
"This much we do know: Our engine room is already flush with $1.6 trillion in excess private bank reserves owned by the banking sector and held by the 12 Federal Reserve Banks. Trillions more are sitting on the sidelines in corporate coffers. On top of all that, a significant amount of underemployed cash – or fuel for investment –is burning a hole in the pockets of money market funds and other nondepository financial operators. This begs the question: Why would the Fed provision to shovel billions in additional liquidity into the economy's boiler when so much is presently lying fallow?"
"Why would the Fed provision to shovel billions in additional liquidity into the economy's boiler when so much is presently lying fallow?"
Simple - to make sure the insolvent banks are kept on life support.
"The truth, however, is that nobody on the committee, nor on our staffs at the Board of Governors and the 12 Banks, really knows what is holding back the economy"
Well why not just get rid of the FED, it couldn't make the situation worse.
then sack the committee for being blind to,
1) Expensive energy,
2) high un-employment.
3) crippling debt.
The Fed does it because its desperate....its almost zero bound economics....oh god the Fed is going Keynesian...while Congress and most everyone else goes Austrian.
doh
regards
mist,
In the US case I agree with you. It doesn't seem all that helpful channelling extra money through the banks, when loaning more of it out doesn't meet any test of likely to be repaid; or will meet a general resistance to extra debt.
Am surprised that in the election season, that one or both parties has not proposed tax breaks at the bottom end of the income scale. (I understand Romney would like to extend them for wealthy people). These tax breaks could be funded by the same money printing Bernanke is doing, so wouldn't in reality add to the fiscal deficit, and would still achieve their competitive devaluation aims. Consumption would go up; employment would follow; house prices would follow and so on. The currency position would mean that effort would be relatively concentrated domestically, so not blow out their current account deficit.
When things improve; such breaks could be potentially wound back.
Shelia Bair interview with WSJ. Unbelievable.
For anyone worried about the future of the National Bank horse, the real one that runs around in the TV ads, ANZ CEO David Hisco says you can relax. He has been doing a live chat on the Herald website and said this of the horse, pictured above with its legs in the air:
"The horse is called Cody and he is going to be roaming freely in the Waikato. He is a trained movie actor so you may see him gracing the screens in a Peter Jackson movie."
re #3, the dramatic changes in the Chinese demography: It pays to also note the huge disparity of boys over girls. The country can only breed new population through the girls. So over time this will skew the future lack of new workforce even more.
Another point: as rural people hit middle age in China, they are not prepared to travel to Shenzen or Guangzhou to work on a production line, they prefer to potter around on the farm in their own village, even it means a reduction in income. So as that current group of young people hits middle age, this will also impact on the workforce.
Watch this space!
Spengler (David P Goldman) offers a refreshingly direct diagnosis of the ME: an Israeli attack on Iran would solve quite a number of regional issues. So just get on with it....
Of course, the economic impact are, shall we say, rather downplayed. BH, you may wish to discuss.
Oh, and the China demographics is such an Old story, chaps and chapesses. Mark Steyn is a self-admitted demograhics bore, and has pounded this particular drum for the better part of a decade. Glad to see that the rest of the world is catching up, but really....
Some analysis of the economic effects???
What Chinese middle class will exist in (say) 12 years/2025?
What will the remnants be buying, and from whom?
..."What will the remnants be buying, and from whom?"
Perhaps Chinese big business will be outsourcing to cheaper labour in Africa.
About 3 years ago, the NZ institute predicted that by 2025 New Zealand would be overtaken in per capita GDP by Kazakhstan and Botswana. We're on track, but I suspect it's all going to fall apart before then.
When you take into account peak everything, exponentially increasing debt, the gutting of the middle class, climate change, and the inherent requirement for continual growth, It's very difficult to see how all of this can end in anything but total worldwide economic collapse.
The only way out is to close up shop one Friday night and usher in a totally new world economic system on Monday based on digital currency and zero interest helped along by zero population growth. It isn't going to happen, so we're going to have the change inflicted by revolution, war and famine.
I fear for my grandchildren.
Thomas Malthus was right, he just didn't foresee that we'd be able to kick the can down the road so far by running on a planetary battery made of hydrocarbons that he didn't know about.
"Do you not know, my son, with how little wisdom the world is governed?"
The US petroleum figures cam out overnight for August 18.6 million bbl per day.slightly up on July (2.8%) but the lowest aug consumption in 15 yrs (4.3%) NZ seems to observe the declination .
Here is the NZ/US correlation 2005-2011 units in 1000 bbl per day (US EIA FIGS)
Imports of crude down again in US.another fat thumb correction coming soon ?
US imports down but did US domestic crude production rise? (I havnt seen numbers yet but I think its down).
btw, futures seem OK,
"In contrast to the crude story, US gasoline futures have continue to surge this week and are now up over 20 cents a gallon since last week, closing on Wednesday at $3.08 a gallon.'
So despite less demand/use indications are its going up. We also have the US heating season coming upon us.....lots of US homes still oil fired...
Maybe the oil companies have decided Obama will win so are re-acting..."oh he'll kill the economy so we wont need the crude" la la land.........
http://www.energybulletin.net/stories/2012-09-27/peak-oil-notes-sept-27
Not sure what you mean by a fat thumb correction, a big price drop?
Ive kept an eye on this for some years and I have no clue where its going, seems to be volitile and il-logical. Just as you think the fundimentals should drive it up, it drops....just as you think it might drop a bit it drops a lot or rises.....LOL. Oil future traders stomachs must be made of cast iron...lined with cement...
regards
US election, republican rout?
http://krugman.blogs.nytimes.com/2012/09/27/not-the-election-they-were-…
hmmm
regards
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