Tuesday's Top 10 with NZ Mint

Tuesday's Top 10 with NZ Mint: Is 2012 just like 1937?; Train lovers vs Rodney Hide; Texas' secession movement; Niall Ferguson on China; Playing poker with trillions; Dilbert

20th Nov 12, 12:42pm by Bernard Hickey

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 #3 from Der Spiegel.

1. Just like 1937 - Bloomberg's Amity Shlaes looks at the parallels between 1937, when FDR was re-elected, and 2012.

She points to 'fear fearsome ways' in which 2012 is looking like 1937, a point when the US government tightened its spending and tipped the US economy into the next phase of the Depression.

This fiscal cliff debate will be crucial.

As will the outcome of the mess in Europe where the Germans are driving through big austerity throughout Europe.

It's too early to say yet. But the signs aren't good.

It’s hard to imagine stock indexes dropping by half today, or unemployment rising past 15 percent, as they did in the “depression within the Depression.” But the parallels are visible enough to be worth tracing. They have to do with the danger of big government, and can be captured in a few categories.

2. Trainlovers vs Rodney Hide - Here's the Auckland Transport blog arguing against Rodney Hide on urban sprawl.

3. Playing Poker with trillions - Here's Cordt Schnibben with some wisdom on debt and growth courtesy of Der Spiegel. HT Waymad.

4. Where China goes - Niall Ferguson talks with Alasdair McLeod about China's outlook. A fascinating discussion of Chinese history.

5. The Europeans are coming - New York Times reports on how European governments are ganging up on the 'cloud-based' multinationals such as Google, Amazon and Apple that avoid paying tax in Europe.

6. In China, to get rich is not so glorious - Businessweek looks at how rich people in China are not so happy.

7. Here come the Chinese - Anne Gibson reports on an anecdote I talked about in a speech last week in Melbourne.

Ian Thornhill of Barfoot & Thompson said one wealthy Chinese buyer paid top dollar for a Market Rd, Epsom, house which had since stood empty for weeks as the deal was "just offloading some surplus funds".

Thornhill said that type of activity was not unusual and he fears for the effects.

"I don't think it's a good thing at all. Kiwis are getting really upset. They can't compete with Asians who have the money and they pay more. You can see Kiwis only have a certain amount of money to spend but they do stretch themselves. This is all having an impact on us. It's as plain as the nose on your face, what's happening in the auction rooms each week."

8. 'Don't worry about the cliff - Politico's Ben White says the Fiscal Cliff is not really a problem because the Republicans don't want to be blamed for going over it.

There seems little chance the cliff battle will go near or past the December 31 deadline. Nearly every signal from Republicans suggests they understand they have lost the war over taxes going up on the wealthiest Americans and are just trying to figure out how to get the least objectionable deal that includes real spending cuts and a trigger for tax and entitlement reform. It’s clear from polling that the GOP will get the blame if taxes go up on everyone on Jan. 1 and any subsequent damage to the economy and markets will fall squarely at the party’s feet. Republicans are no longer ignoring such polls. And there is simply no way, after getting wiped out by last summer’s debt ceiling fight, losing terribly at the presidential and Senate level and barely hanging on to their House majority, that Republicans can afford or will allow themselves to be saddled with a politically disastrous fiscal cliff crash. So while talks will continue and the public kabuki will play out for a few more weeks, we are really just waiting on a final score.

9. Let's secede - Some people in Texas want to secede from the United States after Obama won again...

10. Totally Jon Stewart on Bill O'Reilly excuses for the Republicans' election loss.

The Daily Show with Jon Stewart
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36 Comments

by Basel Brush III | 20th Nov 12, 1:00pm 1353369642

#7 Good one. About time some of our MPs started to listen.

This cash INVASION is both affecting the DEMAND side of the Auckland housing problem and probably helping to keep the exchange rate untenably high.

By all means tackle the SUPPLY side but this problem will not go away until we as a country give them a message.

IMHO the problem is the DIFFERENCE betwen the supply and demand and whatever any party can do to assist the supply of housing in Auckland is being undone if we do not have a go at distortions in demand

by wtf | 20th Nov 12, 1:30pm 1353371409

It should be cue Wiston and the Greens but MP's of all parties have bought into the property bubble economy. Winston lives in St Marys Bay now last I heard and several of the Greens have investment properties. Add them to the Labour and National MP's who have been into investment property boots and all for years (how many did Helen Clarke have?) and what are the odds of any party addressing immigration or foreign ownership in a way that would affect property values.

by The best statu… | 20th Nov 12, 1:12pm 1353370371

#7, good for me, my house in Greenhithe must have incresed in value. After my additions it will be worth $200-300K more. But I am not selling to any Chinese though.

Reason for going into debt is that I can afford the 5.5% interest rate on my $150KPA job and if Greens get in inflation will make the debt go even faster.

by Basel Brush III | 20th Nov 12, 1:16pm 1353370617

Shouldn't that be "good for me,me,me"?

What happens if the cashed up buyers disappear from the market and you have only impoverished local 30 somethings kicking tyres?

by The best statu… | 20th Nov 12, 1:26pm 1353371194

WTF - I cannot control the market. Unlike useless socialists I stand on my own 2 feet, done my homework, I have a $700K house mortgage free, $250K do up and it is worth $1M and I pay it off in 5-6 years. What are the chances of it falling in value by 50%? I say zilch, esp if Norman becomes Finance minister, my debt will be inflated away. I will also look after my kids when they are older, I might even buy one of Shearer's nice new houses he is promising at a discount rate paid by the taxpayer.

by Stephen Hulme | 20th Nov 12, 1:52pm 1353372746

Kids will be off to Australia or further afield - houses do not create jobs for the majority - and you will need many millions to help more than one kid.

by wtf | 20th Nov 12, 2:17pm 1353374221

Don't be too hard on The Best Status. He is only doing what all of us have been told to do for the last 30 years. Act "rationally" in your own self interest and the sum aggregate of all those self interested actions will create the optimum outcome for the economy and society. Isn't that the core belief of neo classical economics?

Obviously for some to really prosper many have to be sacrificed - not everyone can be wealthy, there's not enough resources or money for that to be feasible - so what the hell, grab as much as you can because if you don't someone else will. Social Darwinism's where its at. Otherwise you're just a Socialist pansy :-D

by The best statu… | 20th Nov 12, 2:44pm 1353375896

You have to look after your own first I am afraid. The socialist ethic of society comes first is BS. I also look after society more than most through high taxation (lagalised theft) so the likes of Lofflley can smoke it up and kill a 2 year old. At least I work in an industry that helps keep people producing goods and offering value added products (chemicals) etc.

As for Australia, I agree, they have a once in a lifetime mining splurge, while pathetic NZ listen to green shite and wank on about green jobs.

Best thing NZ can do is get rid of the 100% pure image, I want to see more pollution. At least this will be men at work producing, not sitting around dope smoking and killing kids.

As for last 30 years, I pay off debt, not borrow for holidays etc. What is wrong with house extensions esp since the house needs some work done it already ah?

by Learn to Socia… | 20th Nov 12, 6:28pm 1353389313

It as if we deregulated the NZ rugby competition and the nuggety North Otago Rugby team had to play the All Blacks, winner takes all. If anybody wants to know how this is going to end, ask the Maoris what their experience of the "open boarders" and "deregulation" of the 17th century, when the "entreprenuers" came to "innovate" in NZ. The English had seemingly unlimited amounts of money and the . Maori were driven out of the most valuable property.

by The best statu… | 20th Nov 12, 11:41pm 1353408113

Often with the blanket and rifle they traded the land for.

Also, what did the tribes they drive out beforhand get in compensation. Nothing as they were all eaten by their victors.

The great brown anchor, keeping NZ from getting ahead since 1970.

by Patricia | 20th Nov 12, 2:45pm 1353375911

3. Such am interesting article.

"And then, finally, we have a clear view of the three biggest problems in finance-driven, democratically constituted capitalism: First, how can a debt-ridden economy grow if a large part of demand in the past was based on debt, which is now to be reduced?

The second major problem of modern capitalism is this: How can the unleashed financial markets be reined in again, and how should the G-20 countries come up with joint rules for major banks, which are their financiers and creditors, and for markets, which punish and reward these countries through interest? How much freedom do financial markets need to serve the global economy as a lubricant, and what limits do they need so that banks, shadow banks and hedge funds do not become a threat to the system? Third, how do governments mediate between the power of the two sovereigns, how do they reestablish the primacy of citizens over creditors, and how does democracy function in debt-ridden countries? How can politicians react without burdening countries with more debt, and how can they reduce that debt? In fact, how can they even govern anymore in this prison of debt? In the past, future revenues were mortgaged, in municipalities, states and the federal government. This now makes it difficult to structure the present and the future. Today only about 20 percent of the federal budget is truly politically available, as compared with 40 percent when Schmidt was still in office. It is always only at first glance that the world is stuck in a debt crisis, a financial crisis and a euro crisis. In fact, it is in the midst of a massive transformation process, a deep-seated change to our critical and debt-ridden system, which is suited to making us poor and destroying our prosperity, social security and democracy, and in the midst of an upheaval taking place behind the backs of those in charge."

by steven | 20th Nov 12, 2:53pm 1353376417

It missed energy...

http://www.debtdeflation.com/blogs/2012/11/16/energy-production-and-ent…

regards

by Ralph | 20th Nov 12, 3:14pm 1353377650

At some point the debt has to be paid doesn't it. We can do it fast and have social unrest on the scale of the great depression or we can try and do it slow as seems to be case now. Having said that someone suggested to me youth unemployment is close to 50% in Spain so maybe it remains to be seen as to whether this is the easier road.

Eroding the value of the debt also seems to be a popular idea but it's a tax that sits heaviest on the poor because their costs go up on food and fuel, which constitute most of their budget,

I would make one point, that it was government stated policy to provide housing to the poor through market means, meaning cheap finance as provided by the private sector. In New Zealand we choose not to save and so all that finance came from overseas which has caused big problems for our export earners through exchange rate pressure.

Also, in your point three it might be useful to think separately about private and public debt. Government can stop borrowing but that alone doesn't stop the private demand. In NZ I think it's the private debt side that out weighs the public, suggesting government has been more responsible than the citizens they represent.

by steven | 20th Nov 12, 3:57pm 1353380226

Close to 50% as in the rear view mirror....54% and rising...wonder how long the peace will last. This is going on for a decade probably 3....so 54% of their present workforce could hit 40 and not have a decent job or prospects....what does that do to housing demand? consumer demand? Govn tax income v outgoings....

that's ugly on so many levels.

http://epp.eurostat.ec.europa.eu/statistics_explained/index.php?title=F…

Debt, well you missed default...and in a depression with a collapsed income paying off large debt aka greece and spain just seems impossible....

Something has to give IMHO.....Greece is pretty much guaranteed not to repay is debt....I wonder what Ireland's voters will do when they see greece "getting away with it"

hrmmmm.....

regards

by David George | 20th Nov 12, 4:58pm 1353383937

Read a most compelling article from Kyle Bass on this and the future trends shaping our world economy:

Central bankers are feverishly attempting to create their own new world: a utopia in which debts are never restructured, and there are no consequences for fiscal profligacy, i.e. no atonement for prior sins. They have created Potemkin villages on a Jurassic scale. The sum total of the volatility they are attempting to suppress will be less than the eventual volatility encountered when their schemes stop working. Most refer to comments like this as heresy against the orthodoxy of economic thought. We have a hard time understanding how the current situation ends any way other than a massive loss of wealth and purchasing power through default, inflation or both.

The overarching belief is that there will always be someone or something there to act as the safety net. The safety nets worked so well recently that investors now trust they will be underneath them adinfinitum. Markets and economists alike now believe that quantitative easing (“QE”) will always “work” by flooding the market with relatively costless capital. When the only tool a central bank possesses is a hammer, everything looks like a nail. In our opinion, QE just doesn’t stimulate private credit demand and consumption in an economy where total credit market debt to GDP already exceeds 300%. The UK is the poster child for the abject failure of QE. The Bank of England has purchased over 27% of gross government debt (vs. 12% in the US). UK bond yields have all but gone negative and are now negative in real terms by at least ?1%. Unlimited QE and the zero lower bound (“ZLB”) are likely to bankrupt pension funds whose expected returns happen to be a good 600 basis points (or more) higher than the 10?year “risk?free” rate. The ZLB has many unintended consequences that are impossible to ignore.

Our belief is that markets will eventually take these matters out of the hands of the central bankers. These events will happen with such rapidity that policy makers won’t be able to react fast enough.

The fallacy of the belief that countries that print their own currency are immune to sovereign crisis will be disproven in the coming months and years. Those that treat this belief as axiomatic will most likely be the biggest losers. A handful of investors and asset managers have recently discussed an emerging school of thought, which postulates that countries, as the sole manufacturer of their currency, can never become insolvent, and in this sense, governments are not dependent on credit markets to remain fiscally operational. It is precisely this line of thinking which will ultimately lead the sheep to slaughter.

Trillions of dollars of debts will be restructured and millions of financially prudent savers will lose large percentages of their real purchasing power at exactly the wrong time in their lives. Again, the world will not end, but the social fabric of the profligate nations will be stretched and in some cases torn. Sadly, looking back through economic history, all too often war is the manifestation of simple economic entropy played to its logical conclusion. We believe that war is an inevitable consequence of the current global economic situation.

http://www.scribd.com/fullscreen/113621307?access_key=key-11v6eigpyerwn…

by steven | 21st Nov 12, 8:55am 1353441353

Funny thing is this piece looks back historically and misses the most important point....in the past we have always had more energy or an abundance of cheap energy to wage wars on the scale we did...Now we dont....look at the money spent bu the USA on just recent small ones.

I certainly think internal conflict is a certainty for many states...over-flowing into regional ones....waging wars on long distance supply lines? cant see it.

regards

by Ralph | 20th Nov 12, 5:11pm 1353384708

The problem with default is that it does not provide any foundation to build wealth upon.

by steven | 21st Nov 12, 9:00am 1353441621

Well you miss three things IMHO,

1) the biggest thing, so called "wealth" is under-written by energy....we are in decline on that.

2) Neither does decades of grinding deflation, inflation and / or financial slavery for the masses.

3) Much of the money lent is rooted not in a productive enterprises output but actually brought into existance by the click of a mouse...yet the payback is expected to be via a productive enterprises output.

For me it just doesnt add up.

regards

by Ralph | 21st Nov 12, 2:15pm 1353460507

I think it's immature for those who willingly chose debt to preach it as injustice after the fact.

The lender did not choose to place the money in unproductive investment so it's hardly a defence of the borrower. The fact that you have to be productive to pay back debt, in this context, is nicely ironic.

by steven | 20th Nov 12, 2:50pm 1353376234

Steve Keen's best piece yet,

http://www.debtdeflation.com/blogs/2012/11/16/energy-production-and-ent…

He understands energy...

for an economist thats pretty amazing.

regards

by powerdownkiwi | 20th Nov 12, 7:51pm 1353394272

good link, Steven - but note the comments.

They miss it like a lot here do. No comprende.

by steven | 21st Nov 12, 9:15am 1353442535

LOL....I dont/didnt read those, I usually find they are written by the clueless banging their drum. So went back.....and yes some "no comprende" talking about wisdom FFS....yes clearly not connected to reality...

I wish occasionally that I could spend say 5 years back in say 1800, so I can see, question and experience just how ppl lived, thought etc when working/surviving within the annual energy of the sun.

As an example my children have no concept of not having a PC to hand, its like breathing air to them, essential. Indeed I listen to so called educators saying an ipad is an essential tool for education...no one needs to know how to write as machines will do it for them....or indeed that much output could be audio and visual and the written word fall into [relaitive] dis-use....hrrmmmm.

regards

by Boatman | 20th Nov 12, 4:56pm 1353383790

The AUCKLAND TRANSPORT BLOG are a bunch of nutters that should be ignored and given no space to air their stupid views at all, which frankly no Kiwi bloke would ever subscribe to anyway.

They should run a poll .

My staff see the the use of the bus as a sign of of personal failure , putting you way down on the social ladder, along with struggling single parents, students and beneficiaries.

Public Transport is seen as being for losers , the ultimate leveler in society , reduced to just a number among the masses waiting for the bus or train.

Both Sociologists and economists will tell you that people have choices, and clearly lots of people prefer the motor car to the train or bus .

For migrants , not wanting to use public transport and live like people in HongKong, Shanghai, Seoul or Mumbai is something any sensible person would choose, thats why they come here to live in New Zealand in such large numbers

Personally , I dont want to use public transport , its too expensive , too erratic , does not take me where I want to go and Auckland is too cold and wet and windy in winter to stand waiting under unprotected bus shelters for a late bus .

The truth is that people prefer using their cars to smelly noisy unreliable diesel trains and busses whose drivers strike at a drop of a hat and cause commuter chaos.

Building a rail loop is just that .... a loopy idea that will only be of use to a minuscule portion of Aucklands population , but will be paid for by people in Whagaparoa and Coatesville

I dont see why Auckland is being restricted in growth , when we have an immigration policy encouraging people to migrate here , we pack them in and restrict the availability of accomodation , its crazy

by scarfie | 20th Nov 12, 6:47pm 1353390477

Lol nice litte rant. I would agree with you that the proposed system is a farce but for different reasons. How about an urban design that means you don't require a car? That is the real solution, not urban sprawl.

Cars, along with cities, are unsustainable. So keep driving your car but eventually the price of fuel will be driven so high you won't be able to afford it. But public transport in Auckland has never been competitive in cost terms with private transport, so changes definitely need to be made.

by Matt in Auck | 20th Nov 12, 8:46pm 1353397588

Cars, along with cities, are unsustainable

So, if cities are unsustainable Scarfie, what is the alternative?

All kiwis living in lifestyle blocks blanketed acorss the country, with ability for them to be self sufficient or close to?

Frankly, I get a bit sick of the "cities / development" is unsustainable ranting on this site.

by scarfie | 20th Nov 12, 8:57pm 1353398236

Well lets say I blow all the bridges between Hamilton and Whangarei, then blockade the Waitemata and Whangarei Harbours. Perhaps the Manukau as well. How long do you reckon Auckland would last? If it can't support itself then it isn't sustainable. Our cities in particular rely on imported oil, stop the oil supply and what happens? If there is one reason for their not being a war in the middle east it would be that no country can afford for the supply of oil to be interrupted.

There is certainly a certain magic to a city, although I don't really see that in Auckland. Wellington would be my pick of New Zealand cities. What would be the density that can be sustained in the absence of oil is really the question, I don't know that there is an example to draw from. As I have said before, the housing response to the industrial revolution has never been solved.

by powerdownkiwi | 20th Nov 12, 9:19pm 1353399587

Well put, Scarfie.

Matt has had a long time to move his thinking, but (and it's years I'm talking about) there's been no movement at all.

If he'd read my posts on the topic, the demise of oil-based BigAg will leave a lot of land for local food production, and a need for a lot more labour per acre. It's almost a foregone conclusion that the hollowed-out towns and villages, spaced before abundant energy, will re-fill first.

He's had all that. Like a few newspaper reporters down my way, I think it's a case of 'not wanting to know'.

by Matt L | 20th Nov 12, 8:52pm 1353397969

Funny enough there are a lot of Kiwi blokes that read Transport Blog as well as plenty of highly educated professionals including economists. Hell there is even an economist who is one of the bloggers.

Your staff must be fairly unique if they see using public transport as a personal failure, these days 50% of people entering the CBD every morning between 7-9am do so on public transport while over the last decade the number of people entering by cars has not only srunk in % terms but also in total numbers (40k down to 34k). Many of those people catching trains and buses could easily have afforded to drive but they choose not to.

You are correct, people have choices where you are wrong is in thinking that most people actually have one. With the exception of getting to the CBD most people find that public transport just doesn't work for them so they drive which is a logical response but is due to the PT system being crap, not that they don't want to use it. The reasons for the PT system being crap are primarily due to the fact we only invested in one mode (cars) for almost 6 decades. The few areas that we have invested in recently have seen massive growth, as an example in just a few years the number of people crossing the harbour bridge in the morning by bus has jumped to about 40% thanks to the Northern Busway.

You personally might not want to ever use PT and that is fine, no one should force you to however you would benefit from getting drivers off the road who don't want to be there. There are plenty of people who want to be able to use an alternative.

As for the City Rail Link, without it there is a good chance that the central city would need to almost be completely closed off to cars due to the number of buses that would need to run.

by moa man | 20th Nov 12, 9:21pm 1353399696

Having your own vehicle is freedom, to go where you want, when you want.

Without that, you might as well be a rat, or some other animal.

by Trolleyboy | 20th Nov 12, 9:56pm 1353401802

Great, and exactly what I used to think, sitting in the jam on the northwestern motorway every morning. My car lets me go where I want, when I want......

by Matt L | 20th Nov 12, 9:57pm 1353401872

Sure you can go where you want with a car but that falls apart when everyone else is trying to do the same thing. The image of a whole pile of sheep all following each other springs to mind.

by David George | 21st Nov 12, 7:32am 1353436323

"My staff see the the use of the bus as a sign of of personal failure , putting you way down on the social ladder, along with struggling single parents, students and beneficiaries.

Public Transport is seen as being for losers"

Your staff sound like a bunch of emotionlly retarded 16 year olds. Do you work at McDonalds?

A major city with an intensive city centre couldn't work if most people used private cars to get to work there and move about. The centre would have to be so big it's reason for being would cease to exist Imagine London trying to operate without "The Tube" Although I do wonder at the long term future of these hugely expensive places as modern technology is making them redundant.

by Noprogram | 20th Nov 12, 8:01pm 1353394919

#7 So essentially the New Zealand taxpayer pays for the infrastructure and provides the social capital to make our towns and cities liveable and overseas 'investors' and property speculators capitalise that gain. -A lot of this money is generated through the global distortions in the flow of hot money around the world to the benefit of the people who can best take advantage of that, not your average worker.

Tax has been shifted on to salary and wage earners and off property speculation.

If you're not a taxpayer and contributing to NZ society then you shouldn't be able to capitalise on that situation while manifestly excluding the people of this country that create it's social and material fabric.

Time for a political overhaul.

by Basel Brush III | 20th Nov 12, 9:34pm 1353400442

Let them keep coming until we have enough unrest to make it worthwhile to change the rules and force them to sell only to residents who qualify and with a time limit to liquidate as well. See the market turn then. Of course we will need some preparation with lowered LTV ratios first so that decreased values will do less damage.

Whoopee!

by Stephen Hulme | 20th Nov 12, 10:26pm 1353403606

Same happened to rural England. The local farm labourers etc were priced out of their homes in the villages they and their families had tended to for decades, if not generations.

Thereafter, once bustling villages become ghost towns and instantly lose their previous charm. Absentee landlords are a scourge upon any nation's resident citizens.

by iconoclast | 21st Nov 12, 8:37am 1353440270

Number 7

Well, Well, Well, lookee here - It's now official, authoritative, in black-and-white, right from the Horses Mouth at Barfoot and Thompson

Today in NZ Herald - Headline "Debate of the Day"

http://www.nzherald.co.nz/opinion/news/article.cfm?c_id=466&objectid=10848739

Yesterday nz.interest.co.nz

Number 7 in Tuesday's Top-10 Hit Parade, by Bernard Hickey

quoting NZ Herald by Anne Gibson

Right from the Horses Mouth at Barfoot and Thompson

http://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=10848593

oh geeee whizzzzz

You read it here first 2 years ago. It's not new. Basel Brush and yours truly have been telling you this right here at interest.co.nz for over 12 months. Thornhill's acknowledgement states a house purchased for $3 million is simply "long-term-car-parking" for asian money. The house remains empty. I reported this happening in Melbourne two years ago.