Here's my Top 10 links from around the Internet at 1 pm 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 #7. It's an argument in favour of subsidies for manufacturers in Australia. It's not a popular argument, but one worth reading if you want your views challenged.
1. Iceland's currency controls - Iceland's decision to at least partially default on its debts and impose currency controls in the wake of its financial meltdown was derided by the powers-that-be at the time, but it has turned out reasonably well.
Iceland let its banks go broke and imposed the pain on foreign depositors and bond holders.
Iceland certainly did better than Ireland, which chose to bail out its banks with public money to avoid hurting the European bond holders.
Now Iceland has had a change of government and is still sticking with some of its currency controls, including those aimed at currency speculators.
Even a change of government hasn't changed that.
Here's Bloomberg with the latest:
Iceland is tempering its goal of lifting capital controls as the new government says it will probably keep some restrictions to stop currency speculation.
“It’s possible that Icelanders will, in the same way as other countries are contemplating, impose limits on derivative trades with the currency,” Finance Minister Bjarni Benediktsson said in an interview. The nation may also “place a limit on Icelandic banks gathering foreign exchange in foreign branches. This can be considered as some kind of restriction on capital flows, but we can also view this as a normal part of managing the currency.”
Benediktsson, who together with Prime Minister Sigmundur Gunnlaugsson has pledged to target a swift removal of capital controls since before April 27 elections, is redefining the goal as the euro zone tries to plot an exit from its controls in Cyprus. The path Iceland chooses -- and the restrictions the island ends up leaving in place -- promises to serve as a guideline for nations learning that such regimes are easier to put in place than they are to escape.
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2. Israel's currency intervention - Politicians in New Zealand who suggest currency intervention are accused of 'voodoo economics'.
Yet Israel, which has one of the world's most respected central bankers in Stanley Fischer, has just cut interest rates to reduce the value of the shekel and has intervened again to drag it lower.
Here's Bloomberg with the details:
The Bank of Israel reduced borrowing costs for a second time this month, narrowing gaps with rates in major economies as it focused on keeping the shekel weak enough to support growth.
Governor Stanley Fischer and his monetary committee pared rates yesterday by another 0.25 percentage point to 1.25 percent, the lowest in more than three years. The shekel, which traded at a 21-month high in early May, was down 0.8 percent at 3.7155 against the dollar three hours after the bank announced it wanted to “weaken the forces” for its appreciation.
With just weeks to go before he steps down after eight years, Fischer began intervening in the currency market last month for the first time in nearly two years. He also accelerated the pace of rate cuts, including a surprise reduction two weeks ago.
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3. How about China investing its foreign reserves in foreign property? - Just what the world needs. Here's Bloomberg with the suggestion China may buy US property.
Heaven help us if China thinks to do the same for/to us.
China is studying the possibility of investing a portion of its $3.4 trillion in foreign-exchange reserves in U.S. real estate, said two people with direct knowledge of the situation.
The State Administration of Foreign Exchange began the study after seeing signs of a recovery in the U.S. property market, said the people, who asked not to be identified as they weren’t authorized to speak publicly about the matter. China may acquire properties, invest in real estate funds or buy stakes in property companies, they said. The safety of the investments will be the top priority, said the people, who didn’t elaborate on a timetable or other details.
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4. Poor old Solid Energy - Chinese coal prices are falling again as factory production that uses electricity contracts again.
Chinese power-station coal fell to the lowest price in almost four years as the nation’s manufacturing shrank for the first time in seven months and hydropower output increased. Spot coal with an energy value of 5,500 kilocalories per kilogram at the port of Qinhuangdao, the benchmark grade for the country, slid to a range of 600 yuan ($97.96) to 615 yuan a metric ton as of yesterday, according to data today from the China Coal Transport and Distribution Association. That’s the lowest since Oct. 12, 2009, data compiled by Bloomberg show.
Manufacturing, which accounts for about 70 percent of China’s electricity demand, is contracting this month for the first time since October, according to the preliminary reading of a Purchasing Managers’ Index by HSBC Holdings Plc and Markit Economics on May 23. The nation’s hydropower output in the first four months of 2013 expanded 20 percent from a year earlier to 181 billion kilowatt-hours, data from the Beijing-based National Bureau of Statistics showed May 16. Thermal electricity generation climbed 1.6 percent to 1.34 trillion kWh.
“The low coal price is mainly because of sluggish domestic demand, especially from the heavy industrial sectors,” said David Fang, a Beijing-based director at the China Coal Transport and Distribution Association. “Sufficient rainfall in southern China is squeezing China’s demand for burning thermal coal. The price will stay at a low level throughout this quarter.”
5. Be a bit careful - There's been a lot of talk about alternative digital currencies lately.
BBC reports one called Liberty Reserve has just been shut down after its founder was arrested on suspicion of money laundering...
Authorities in the Central American country said Arthur Budovsky had been taken into custody in Spain on suspicion of money laundering, following an investigation which also involved the US. They added that police had raided several of Mr Budovsky's properties and seized his computer servers.
The site went offline on Thursday. Liberty Reserve had described itself as being the internet's "oldest, safest and most popular payment processor... serving millions all around a world".
6. Cool. I want one - Here's an electric bicycle with its own WiFi hotspot. So you can tweet as you are run over by a bus.
7. Another point of view - Australia is having a ding-dong battle at the moment arguing about subsidies for the Australian car industry in the wake of Ford's shock closure decision.
Remy Davison at Monash University argues in favour of the subsidies in this Conversation piece.
As Kim Carr noted recently, the industry, cumulatively, received subsidies amounting to less than $18 per person over the last decade. So it cost you, the long-suffering Australian taxpayer, the princely sum of $1.80 per annum to prevent the collapse of plants like Elizabeth, Fishermans Bend, Altona, Geelong and Broadmeadows.
But the flat-earth policies of the free-trade think tanks, who opine that subsidies should be removed at all costs, invariably have no solutions to the systematic deindustrialisation and large-scale unemployment their prescriptions will inevitably bring. (A solid counter-argument to this perspective is advanced by Kalfa and Gollan here.)
These “free-traders” ignore the deep asymmetries wrought by industrial subsidies that persist throughout the rest of the world economy. They propagate the Ricardian fallacy that whatever cannot be produced efficiently locally should be imported.
Short message though is don't bet against the euro.
As it stands, the judges in Karlsruhe can assess only the established procedure governing how and when OMT would be activated. As long as OMT is perceived to be compatible with EU treaties and with the German constitution, which seems likely, the judges will not block the program.
One could argue that OMT would be used as a part of the ECB’s monetary policy, and not to finance budget deficits in some member states, which the ECB’s statute does not permit. While that claim is dubious under current circumstances, it can be refuted only in practice, and can be assessed only after the program has been activated for at least a year.
Moreover, contrary to popular perception, the German Constitutional Court’s record is pro-EU and pro-euro. In every case related to European Monetary Union that the court has heard so far – from its October 1992 ruling on the Maastricht Treaty to its most recent, issued last September – Europe has won the day.
9. Cheap at the price? - The Daily Mail reports on how a former British television engineer bought an entire village in Spain for 45,000 euros NZ$71,000. You couldn't buy a garage in Mangere for that now.
10. Totally Jon Stewart on the problem of 'Too Big to Jail"
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