Here's my Top 10 links from around the Internet at 10 am 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 #3 on the fiscal cliff. It's a significant risk and the election result doesn't make it any better. My other must read is #9 from Adair Turner on how the private banking system creates money and enormous macroeconomic risks when not bolted down. Truly radical stuff from a man who could be the next Governor of the Bank of England.
1. Dead money - The Economist points in this piece about corporate cash hoarding to one of the major problems in the glocal economy at the moment.
Companies worried about the future are socking away cash at an alarming rate, rather than investing in new projects or new hires.
Many burnt during the crisis by a break-down in the banking system prefer now to store or raise their own cash.
The rest are handing cash back to shareholders, who are the promptly putting it into Treasury bonds.
How is this logjam going to be broken?
Here's The Economist with its view:
The four worries unnerving business are: the euro-zone crisis; upheaval in the Middle East; a possible recession in China; and America’s economic health and “fiscal cliff”—the combination of tax increases and spending cuts scheduled to occur at the end of this year.
This is not a new problem. Investment has steadily risen since the recession ended, but not as vigorously as profits. In America, for example, nominal capital expenditure this year (on an annualised basis) has risen by 6% compared with 2007; internal cash flow is up by 32%. Companies have been net suppliers, instead of users, of funds to the rest of the economy since 2008. Firms in the S&P 500 held roughly $900 billion of cash at the end of June, according to Thomson Reuters, down a bit from a year earlier but still 40% up on 2008.
Business leaders and conservative critics cite that cash mountain as proof that meddlesome federal regulations and America’s high corporate-tax rate is locking up cash and depressing investment. But that cannot explain why the same phenomenon prevails worldwide. Japanese companies’ liquid assets have soared by around 75% since 2007, to $2.8 trillion, according to ISI Group, a broker. Cash stockpiles have continued to grow in Britain and Canada, too, to the immense frustration of policymakers there. “Dead money” is how Mark Carney, the Bank of Canada’s governor, has described the nearly $300 billion in cash Canadian companies now hold, 25% more than in 2008. Mr Carney admonished them to “put money to work and if they can’t think of what to do with it, they should give it back to their shareholders.”
2. Remember Inside Job? - Here's its director Charles Ferguson doing a right number on Glenn Hubbard, the academic pilloried in the movie and now Mitt Romney's key financial advisor.
Mitt Romney has a credibility problem. He changes his beliefs like laundry (abortion, medical insurance, whether Bin Laden was worth killing, attacking Iran), refuses to disclose his tax returns, and won't explain how he could possibly pay for the tax cuts he proposes. But there is another scandal in Romney's campaign -- namely Glenn Hubbard, Romney's chief economic advisor, who was chairman of the Council of Economic Advisors under George W. Bush, and is now Dean of Columbia Business School.
I interviewed Hubbard for my documentary film Inside Job, and analyzed his record again for my book Predator Nation. The film interview became famous because Hubbard blew his cool after I interrogated him about his conflicts of interest: "This isn't a deposition, sir. I was polite enough to give you time, foolishly I now see, but you have three more minutes. Give it your best shot." But the really important thing about Hubbard isn't his personality; it's that as an economist and an advisor, he is a total, unmitigated disaster.
2 (bonus). Global tax crackdown - The Telegraph reports Britain and Germany are planning a crackdown on tax avoiders. This story is getting a run on as multi-nationals such as Apple, Google, Amazon and Facebook continue to thumb their noses at cash-strapped Western governments.
This is the backlash. What is our government doing to grab back these revenues?
George Osborne and German finance minister Wolfgang Schaeuble issued a rare joint statement demanding "concerted international co-operation to strengthen international standards for corporate tax regimes" at the G20 meeting in Mexico City.
They want to stamp out the practice of profit shifting, whereby big companies legally move income earned in one country to another jurisdication to lower their total tax bill. The activity is denuding governments of tax revenues and giving big business an unfair advantage over domestic rivals, they said.
3. Does not compute - Reuters analyses how Wall St and Washington are way too relaxed about the US fiscal cliff and how each other would react in the worst case scenario.
At the beginning of next year, $600 billion in tax increases and spending cuts - known as the fiscal cliff - will automatically become law unless Congress acts. Such dramatic moves could hammer consumer and business spending, push the U.S. economy back into recession and send markets reeling.
However, there is a sense that neither the financiers and investors in New York nor the lawmakers in Congress are taking each other seriously enough. Many in Washington believe Congress could do nothing, and the market reaction would be relatively sanguine. Plenty on Wall Street say the fiscal cliff, one way or another, will be dealt with. It raises the possibility that Congress will sail over the cliff, and markets will freak.
"The markets have been way too sanguine on the fiscal cliff," said Greg Valliere, chief political strategist for Potomac Research Group, which tracks Washington for institutional investors.
4. How multinationals avoid tax - The Independent explains how in this useful potted guide. If only we could all do the same...
I need to get me one of those Dutch sandwiches...
5. Insurers brace for the 'supercentarians' - The Guardian reports on what extreme ageing might mean for the pensions industry. How much would you need to save if you lived to 120?
Britain's oldest man, Reg Dean, celebrated his 110th birthday on Sunday. But it may not be long before he is overtaken in the age stakes by a new breed of "supercentenarians". The boss of one of Britain's main financial bodies on Tuesday revealed that several insurers are currently modelling pension products on the basis that their customers could reach the age of 120 or even 125.
Speaking to hundreds of actuaries at a conference, Otto Thoresen, director general of the Association of British Insurers, added that within our lifetime it will be "the norm" for people to live to 100 or more. But this, he said, threw up huge challenges in terms of getting people to save more for what may end up being a very long retirement.
6. 'Amicable divorce' - The BBC reports the tensions within Britain over its membership of the EU are growing.
Avowed Eurosceptic and European MP Nigel Farage has called for an amicable divorce and British Prime Minister David Cameron described the recent EU budget as ludicrous. A parlimentary revolt over that budget and news that 4% of EU money is wasted is fueling the debate.
Mr Cameron wants a freeze in the EU budget but is under pressure from Tory rebels and Labour to demand a cut. Germany has indicated it is sympathetic to the UK's arguments but says some increase is necessary.
Mr Farage waded into the debate in the European Parliament, calling on Mrs Merkel to use her meeting with Mr Cameron to tell him tell him the time had come for "a simple amicable divorce" as feeling in the UK runs completely against the tide of the greater EU integration being promoted by the German leader.
7. Brace for it - FT.com reports Greek politicians face yet another make-or-break vote on yet another austerity package to stay in the Euro. Mass protests are planned.
The 300 deputies were due to vote at midnight after a two-day debate on fiscal and structural measures, including cuts of between 5 and 35 per cent in pensions and public sector salaries, tax increases on fuel and cigarettes, and higher charges for state healthcare. The retirement age will rise from 65 to 67 for recent entrants to the workforce.
Analysts said the measures were likely to be approved by fewer than 10 votes after the Democratic Left, the junior coalition partner, decided to abstain and half-a-dozen socialist legislators threatened to vote against them.
Protesters were due to gather outside parliament in the early evening on the second day of a 48-hour general strike called by Greece’s two biggest trade unions.
8. Useful on the fiscal cliff - Here's a BBC Q&A on the fiscal cliff
It is possible that, now the election is out of the way, policymakers will focus on the impending deadline. But at this moment it is just that - a possibility. This whole issue has been characterised by brinkmanship, with neither side refusing to blink first.
The raft of tax and spending changes about to hit America could be altered, postponed or even cancelled. It is a matter of agreeing new legislation. Yet, the stalemate between the executive and legislative branches of Washington appears as rigid as ever.
9. What other central bankers are saying - Our new Reserve Bank Governor may be wedded to the orthodoxy of inflation targeting and letting the banks do their thing unimpeded, but FSA Chairman Adair Turner, who is a leading candidate to be the next Bank of England Governor, is seriously questioning the orthodoxy in this speech to the South African Reserve Bank.
First, we must recognise the dangers of a simplistically free market approach to finance, and regulate robustly to prevent a repeat. Second, that in the face of deleveraging we may need to consider innovative and unconventional combinations of policies to offset deflationary risks.
The existence of banks as we know them today – fractional reserve banks – exacerbates these risks because banks can create credit and private money, and unless controlled, will tend to create sub-optimally large or sub-optimally unstable quantities of both credit and private money.
Banks can create credit and private money. And as a result they introduce three potential sources of risk:
* They increase leverage within the economy, enabling larger aggregate debt contracts relative to household or corporate income or to GDP. And increased real economy leverage in itself increases potential economic instability.
* And they introduce leverage within the financial system itself – extending credit on the basis of small equity buffers, an inherently risky activity. * And they introduce maturity transformation, with the paper money they issue, or these days the electronic deposits, creating instantaneous or at least short-term available spending power, even when the loans are long-term in nature. And with such maturity transformation, inevitably comes risks of deposit runs, contagion and instability.
10. Totally Jon Stewart with his election night coverage.
We welcome your comments below. If you are not already registered, please register to 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.