Here's my Top 10 links from around the Internet at midday 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 reads together are #1 and #7 together, which explain why the current version of QE is not generating strong growth. Investors don't trust it.
1. It's just not working - PIMCO's Bill Gross has written in his widely read monthly column that the evidence shows the US Federal Reserve's programme of Quantitative Easing is not working to encourage investment.
Instead, investment is falling and households are still spending at the same rate.
Gross has a nice discussion about financial repression, which is where interest rates are held lower than inflation to quietly inflate away debt without having to force the wipeout of bank shareholders and haircuts for bank and other bond holders.
He says economic growth looks set to be very slow and the huge imbalance between asset prices and underlying economic growth creates the risk of massive financial disruption.
This reinforces the lack of investment by investors scared of losing it all.
Rinse and repeat.
How will this logjam be broken?
Here's Gross with an excellent column and some provocative charts.
In the past three years of quantitative easing and financial repression, can we see a noticeable effect on investment as opposed to consumption? Is the Bernanke model working or is the $9,975 being spent on consumption? At first blush, an observer might vote for the Bernanke model. After all, the stock market has doubled in three-plus years, risk spreads are at historical lows, and housing prices are moving up – 10% higher in Southern California alone. Yet the real economy itself seems no different – still in New Normal gear. Surely by now, if the Bernanke model was as advertised, we would be seeing a pickup in investment as a percentage of GDP and a willingness to start saving “seed corn” as opposed to eating “caramel corn.” As Chart 1 points out – we are not. At the same time, we continue to consume at an “Old Normal” pace as shown in Chart 1 as well.
And then he delivers another cracking chart showing America still eating into its capital stock.
Net national savings is the amount of government, household and corporate savings that is left over after our existing investment stock is depreciated. Think of a building decaying and depreciating over 30 years so that you’d need to save each and every year to build and pay for a new one three decades down the road. If you don’t save, you can’t buy one: Net national savings.
Well, Chart 2 confirms the evidence. Over the past three years, our net national savings rate has been negative, and lower than it has ever been in modern history. The last time this occurred was in the Great Depression.All of the money being created and freed up is elevating asset prices, but those prices are not causing corporations to invest in future production. Admittedly, the chart shows this downward spiral has been underway for decades, but financial repression and quantitative easing were supposed to be the extraordinary monetary policies that kick-started the real economy in the other direction. They have not. We have been using the lower interest rates, the $9,975 of free money, to consume as opposed to invest.
2, The engine's not firing - The SMH reports Australia's Reserve Bank has cut its Official Cash Rate by 1.25% to 3.25% since the end of last year, yet house prices there have fallen over the same time.
Home prices fell in October after four months of gains, dashing hopes of a quick housing market recovery aided by lower interest rates. Capital city homes prices fell 1 per cent in October, following a 1.4 per cent increase in September, according to the RP Data Rismark, after the Reserve Bank cut interest rates through 2012. Home prices fell 0.9 per cent in Sydney and 1.1 per cent in Brisbane, RP Data said.
‘‘Despite the cash rate being only 25 basis points higher than the emergency lows seen in 2009, we are yet to see a real improvement in consumer confidence or housing market transaction volumes,’’ said RP Data’s research director Tim Lawless.
Home prices fell 0.9 per cent in Brisbane but rose 0.4 per cent in Perth, RP Data said. Outside of capital cities home prices sank 0.6 per cent in the month. October’s fall occurs during the spring selling season, traditionally a time of renewed activity in the sector.
3. LNG Trucks - FedEX says it is trialling the use of LNG fueled trucks in America. This might be one of the ways America starts to use all that fracking gas it has discovered.
4. Euro-rebellion - Tory MPs in Britain helped Labour block a European Union spending bill in the British parliament earlier this week.
His defeat increases the likelihood of a referendum on Britain’s EU membership – especially when Labour is prepared to play games on such an important issue – and at the very least a renegotiation over terms of engagement. Our relationship with Europe looks set to be a feature at the next general election, however parochial this country’s concerns appear in a fast-changing world. Mr Cameron may be forced to bang on rather a lot about the subject.
Wednesday’s defeat, however, highlights more immediate issues over the prime minister’s control of his ranks. Undeniably his team is guilty of some ineptitude. But his party is close to unmanageable, such is its amazing ability to inflict wounds on itself. Increasingly, it appears to have suicidal tendencies that would make a lemming proud.
The central cause of rebellion was correct. Brussels is guilty of breathtaking waste with its inflated bureaucracy, grotesque inefficiencies, overpaid officials and spendthrift policies. This is unacceptable at a time when economic meltdown is causing misery across Europe and governments are imposing tough austerity measures. And the voices making the case loudest should be those that support membership, not those who oppose it.
5. 'Weather on steroids' - Bloomberg BusinessWeek deems the time since Sandy as long enough to say the obvious: "It's global warming stupid!"
Which raises the question of what alerts and measures to undertake. In his book The Conundrum, David Owen, a staff writer at the New Yorker, contends that as long as the West places high and unquestioning value on economic growth and consumer gratification—with China and the rest of the developing world right behind—we will continue to burn the fossil fuels whose emissions trap heat in the atmosphere. Fast trains, hybrid cars, compact fluorescent light bulbs, carbon offsets—they’re just not enough, Owen writes.
Yet even he would surely agree that the only responsible first step is to put climate change back on the table for discussion. The issue was MIA during the presidential debates and, regardless of who wins on Nov. 6, is unlikely to appear on the near-term congressional calendar. After Sandy, that seems insane.
6. Here's Chris Slane on John Key's memory lapses
7. US growth, or just more debt - Here's Cate Long with a useful chart showing debt growing faster than the US economy...
You can see in the chart above that the amount of U.S. debt issuance far exceeds the dollar amount of growth for the national economy. Part of the debt issuance is used to repay old bonds that reach maturity and must be repaid. According to the Treasury Borrowing Advisory Committee, which is chaired by Matthew Zames of JPMorgan, $276 billion of third quarter 2012 debt issuance was “new money,” beyond what was needed to pay off old bonds. The real dollar growth in the GDP was $190 billion, much less than the amount of “new money” debt issuance. Treasury bond issuance seems to have financed all the growth in GDP.
8. Totally a cute animal picture especially for Amanda - Courtesy of Wired.
9. Totally the great Toy Love Bride of Frankenstein video - Yeeha! HT Russell Brown.
I love the base line at the end.
Very clever policy.
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