Here's my Top 10 links from around the Internet at 10 am today.
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 today is #9 on the problem with German saving.
1. Don't bet on it - Jeremy Warner at The Telegraph weighs into the debate over whether the money printing is about to end.
He doesn't think we're there yet.
He's right.
Mainly because the Europeans have yet to really start their own money printing.
They're likely to get there once Southern Europe blows up properly. All it will take is a Turkish style revolt in somewhere like Spain or Portugal.
Then the Germans will capitulate and turn on the printing machines.
Here's Jeremy with his view:
The world economy is still in a very deep hole, with major structural imbalances still largely unaddressed. Any attempt to apply the brakes would only choke off what remains a very fragile and unconvincing recovery, tipping some major economies back into recession.
This in turn means that central banks will struggle to remove monetary accommodation in the way markets are starting to anticipate. We’ve become hooked on easy money, and I very much doubt the world economy is yet ready for the cold turkey of its withdrawal.
As if to prove the point, there were two absolute shockers in the data from the world’s two leading economies on Monday. Both the US and China saw a contraction in manufacturing activity in May. But worry not. In the “through the looking glass” world occupied by financial markets, what for the real economy looks like unadulterated bad news can, in fact, be seen as good news, for it may mean that central banks are forced into another burst of money printing after all.
2. Break up the Royal Bank of Scotland into good and bad - Robert Peston at the BBC has the scoop. Britain is a real mess. It's even so desperate it might hand over one particularly smelly chunk of RBS to Ireland's bad bank!
there is another, more radical option also being assessed by the Treasury. Which would be to simultaneously take out of RBS the most troubled of its global operations, Ulster Bank, with its substantial lossmaking business in the Republic of Ireland and Northern Ireland.
Ulster has £37bn of assets (loans and investments) on a risk-adjusted basis.
One idea would be to transfer Ulster Bank into the arms and ownership of the Irish government, by swapping all or part of Ulster Bank for low quality British loans and investments currently owned by Ireland's National Asset Management Agency: NAMA inherited these stinky British assets when it acquired the problem loans of Ireland's reckless banks.
3. Trade skirmish - The BBC reports the EU has gone ahead with temporary anti-dumping duties against China's heavily subsidised solar panel manufacturers. This could get ugly.
4. The decline of small business - Ed Dolan at Economonitor points to fresh research and this chart below showing corporate America is racing ahead of small business America, which may explain the jobs drought over there in recent years.
Big corporates have skewed the tax playing field in their direction, it seems.
Typically, corporate income is subject to double taxation, first as corporate profit when it is earned by the firm and then as individual income when owners receive it as dividends or capital gains. However, some corporations, including many of the largest, escape the corporate profits tax in whole or in part by taking advantage of various loopholes. Their owners then benefit further from preferential individual income tax rates on dividends and capital gains. The result is a combined rate for capital income from corporate sources that, even with double taxation, is often below the rate on ordinary income.
As I have frequently argued (most recently in this post), the best way to level the playing field for taxes on businesses of all types would be to abolish the corporate profits tax altogether and tax all capital income at ordinary rates when it is received by owners.
5. 'Bernake will ruin the world' - That's what SocGen's Albert Edwards reckons in this piece.
Low yields, low carry, future low expected returns have increasingly negative effects on the real economy. Granted, Chairman Bernanke has frequently admitted as much but cites the hopeful conclusion that once real growth has been restored to “old normal”, then the financial markets can return to those historical levels of yields, carry, volatility and liquidity premiums that investors yearn for. Sacrifice now, he lectures investors, in order to prosper later.
Well it’s been five years Mr. Chairman and the real economy has not once over a 12-month period of time grown faster than 2.5%. Perhaps, in addition to a fiscally confused Washington, it’s your policies that may be now part of the problem rather than the solution. Perhaps the beating heart is pumping anemic, even destructively leukemic blood through the system. Perhaps zero-bound interest rates and quantitative easing programs are becoming as much of the problem as the solution. Perhaps when yields, carry and expected returns on financial and real assets become so low, then risk-taking investors turn inward and more conservative as opposed to outward and more risk seeking. Perhaps financial markets and real economic growth are more at risk than your calm demeanor would convey.
Wounded heart you cannot save … you from yourself. More and more debt cannot cure a debt crisis unless it generates real growth. Your beating heart is now arrhythmic and pumping deoxygenated blood. Investors should look for a pacemaker to follow a less risky, lower returning, but more life sustaining path.
9. Blame the Germans - Michael Pettis argues excess German savings caused the European debt crisis.
10. Totally Stephen Colbert on a rifle with its own WiFi hotspot.
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