Monday's Top 10: Five principles; assassin arrives; ungrateful banks; grocery prices, oil peak; Chris Rock; Dilbert, and more

Here's my Top 10 links from around the Internet at 10:00 am today.

Bernard is back tomorrow with his version.

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.

1. Five basic principles
What is it about housing policy that leads to people forgetting basic economic principles? asks Dr. Seamus Hogan a senior economics lecturer at the University of Canterbury.

He's not very complimentary of recent Labour Party policy announcements, nor of fellow economist Susan Guthrie (who works with Gareth Morgan).

He says it is hard to see predictions of future population growth in Auckland coupled with land-supply restrictions and feel confident that current prices aren't just capitalising high future costs of housing.

Here are his five principles:

1. The price of housing depends on the supply of available houses and the number of people wanting to live in houses coupled with their willingness to pay for housing. The price of houses depends on the price of housing today and the expected price in the future. Policies that affect who owns houses and the incentive to purchase existing houses as an investment are sideshows unless they change the underlying stock or the underlying demand for housing.

2. Speculation works by buying assets when their price is expected to rise and selling when the price is expected to fall, thus reducing price volatility. Speculative investment that increases volatility in house prices is investment that loses money. If such speculation were coming from overseas, it would be a source of income to New Zealand.

3. Speculation that leads to an increase in house prices and makes money, is only profitable because underlying factors are operating to push prices up even further in the future. Any policy that claims to be able to reduce house-price inflation by restricting speculative investment, is a policy that is an open admission of having no solution to the long-term problem.  

4. Policy can reduce the demand for housing or for houses by imposing taxes, but that can only lead to a reduction in the before-tax price not to the after-tax price and hence is not a route to making housing more affordable.

5. More specifically, there is a tax advantages to owner-occupied housing over renting. But to the extent that has any effect, it leads to too much investment in creating houses and hence to lower house prices than would otherwise be the case. There may be arguments for eliminating the tax preference, but affordability is not one of them.

2. The problem that could sink Asia
When the US Congress returns to work after its summer holiday, one of the big items to be addressed will be its debt-ceiling limit - again. Asian countries hold almost US$7 trillion in US Treasuries. But as a former (and smart) US Treasury Secretary once observed: "It’s our currency, but it’s your problem." The potential for mis-steps are large, and one of those could ruin a lot of plans. William Pesek reviews the problem.

The more Asia adds to its holdings of U.S. debt, the harder they become to unload. If traders got even the slightest whiff that China was selling large blocks of its $1.3 trillion in dollar holdings, markets would quake. The same goes for Japan’s $1.1 trillion stockpile. So central banks just keep adding to them. Pyramid scheme, anyone?

Never before has the world seen a greater misallocation of vast resources. Loading up on dollars helps Asia’s exporters by holding down local currencies, but it causes economic control problems. When central banks buy dollars, they need to sell local currency, increasing its availability and boosting the money supply and inflation. So they sell bonds to mop up excess money. It’s an imprecise science made even more complicated by the Federal Reserve’s quantitative-easing policies.

3. Assassin arrives
The Aussie election campaign - already a too-long and tawdry affair - is just about to get even dirtier. Their election will be on September 7. Rupert Murdoch is sending his mercenaries in. He is fighting to kill their broadband rollout, their NBN initiative. If he 'wins' his dirty war, chances are New Zealand will have a significant ultra-fast fibre infrastructure advantage. Although that will be very good for us, you hate to see it come about that way. More from Paul Sheehan at smh.com.au:

(Until Feb 2013, News Corp owned a controlling interest in Sky TV here, but has since sold that stake. Our UFB initiative is a threat to SkyTV's business model too.)

The arrival of Col Allan in Australia is making a lot of people uneasy.

Allan is a man widely known inside News Corporation as Col Pot, a play on the name of a Cambodian genocidal dictator.

He is News Corp's most feared flamethrower in a company of flamethrowers and he has been sent to Australia by Rupert Murdoch himself. The purpose of his mission has become clear in recent days. One person who should rightly be disconcerted by Allan's sudden secondment to Australia is the head of News Corporation Australia, Kim Williams. Several other executives should also be leery, but they are not Allan's primary target.

His primary target is Kevin Rudd.

4. Today's raw market data ...
A quick new-week update:

5. It's not what they say, its what they do
If you were 'saved' in a time of crisis, and subsequently went on to make A$92 billion, would you quibble about a A$0.5 billion annual fee? Would you try and pass it on to your customers and call it unfair? The Aussie govt. has a budget problem. It now needs help. It is turning to those it helped in the past. What should the big banks do? What will they do? How they react will tell us a lot about them. Heres a SMH report:

The levy, announced as part of a mini-budget on Friday, is forecast to raise about $500 million a year, to be put in a fund to pay depositors in any future bank collapses.

Banks argue the impost is unnecessary and will be passed on to customers through lower deposit rates.

Mr Bowen conceded the cost might be passed on to savers, but also said lenders could choose to absorb the levy after the sector's run of bumper earnings, which were supported by the government's move to guarantee deposits in 2008.

''I want big and strong and profitable banks, but the big four banks have had profits in excess of $92 billion collectively over the past four years,'' Mr Bowen said. ''One or more of them could make a decision to absorb that cost.''

Mr Bowen argued the banks' recent success had been helped by the government's move to guarantee bank deposits free of charge during the global financial crisis.

''With all seriousness and respect to the banks … this government stepped in during the global financial crisis and made an important step to guarantee bank deposits. More than one person has pointed out it was absolutely vital to the survival and prosperity of our banks,'' he said.

Under the policy, a levy of 0.05 per cent will be placed on all deposits below $250,000 that are guaranteed by the government from 2016. This rate is equivalent to 5¢ for every $100. It comes after the government stepped in to guarantee bank deposits up to $1 million at the peak of the global financial crisis in 2008. The upper limit of the guarantee has since been cut to $250,000.

6. How not to pick a central banker
Israel has had a highly respected central bank governor for a long time, Stanley Fischer. But he has announced his retirement. However he must be fuming at the nonsense unfolding over how his replacement is being selected, making the job into an international laughing-stock. BusinessWeek has the sad story:

Karnit Flug, the acting governor, would have been a natural candidate for the post. But she resigned after Netanyahu picked Leiderman over her.

“Netanyahu and [Finance Minister Yair] Lapid should go to the home of Dr. Karnit Flug to apologize and beg her to take on the job,” Labor party leader Shelly Yachimovich said, according to Haaretz. ”A bunch of bad and bizarre decisions that Netanyahu and Lapid took just so as not to appoint a woman more suited for the position is starting to look like one big farce.”

7. No price pressure yet
We have been collecting detailed grocery prices for a 28 item 'healthy food' shopping list for more than two years now. The details of that list is here. The results of this weekly survey is now charted and online in this new graph series. It will be updated weekly.

8. Selling out
This is where you get to when you can't kick the can any further. Endless, unrepayable debt built up during years of voting for free-wheeling 'social' spending politicians in Spain has left everyone, voters and rulers alike, helpless to see any sense in anything anymore. This from Spiegel Online:

Although Madrid residents shake their heads over such tonterías, they no longer resist the foolish things their administration does. After five years of growing unemployment and an economic recession, Spaniards are demoralized. With debts of €7.4 billion, the capital is the most highly indebted city in the country.

Mayor Ana Botella - the wife of conservative former Prime Minister José María Aznar, also with the PP - would like to bring the Summer Olympics to Madrid in 2020, following the city's third attempt to capture the games. Her predecessors have already invested more than €6 billion in the effort, and she needs at least another €2.5 billion. That might explain why, in recent months, Botella has begun to sell off public buildings and properties - even if she hasn't managed to raise very much money so far. A Chinese bank snatched up a magnificent building near the Prado Museum at a price discount of almost a third.

The fire sale also included 26 works by Spain's best-known contemporary artists, which were part of the city hall's inventory. Botella justified the sale, saying the works had "only decorative value."

Madrilenians feel resigned and, if they are scoffing at anything, it is another bizarre idea: Popular Party politicians want to build Eurovegas, a giant entertainment complex, on a 750-hectare (1,850-acre) site in the southwestern part of the city. Under the plan, skyscrapers would shoot up from the wheat fields in the coming years, to house casinos, hotels and convention centers. Backers claim the project, which would become one of the biggest construction sites in Europe, also has the potential to create up to 10,000 jobs, chicken soup for the soul in a country with 27 percent unemployment, and with 682,000 people out of work in the Madrid region alone.

9. Peak oil
The Economist is declaring we have reached peak oil - not a peak in supply, but a peak in demand. Big call.

They say the future is for falling demand for oil while supply keeps rising. And that means prices will fall. They say this future is upon us, even with the growth on China and India. They explain:

We believe that they are wrong, and that oil is close to a peak. This is not the “peak oil” widely discussed several years ago, when several theorists, who have since gone strangely quiet, reckoned that supply would flatten and then fall. We believe that demand, not supply, could decline. In the rich world oil demand has already peaked: it has fallen since 2005. Even allowing for all those new drivers in Beijing and Delhi, two revolutions in technology will dampen the world’s thirst for the black stuff.

The first revolution was led by a Texan who has just died. George Mitchell championed “fracking” as a way to release huge supplies of “unconventional” gas from shale beds. This, along with vast new discoveries of conventional gas, has recently helped increase the world’s reserves from 50 to 200 years. In America, where thanks to Mr Mitchell shale gas already billows from the ground, liquefied or compressed gas is finding its way into the tanks of lorries, buses and local-delivery vehicles. Gas could also replace oil in ships, power stations, petrochemical plants and domestic and industrial heating systems, and thus displace a few million barrels of oil a day by 2020.

The other great change is in automotive technology. Rapid advances in engine and vehicle design also threaten oil’s dominance. Foremost is the efficiency of the internal-combustion engine itself. Petrol and diesel engines are becoming ever more frugal. The materials used to make cars are getting lighter and stronger. The growing popularity of electric and hybrid cars, as well as vehicles powered by natural gas or hydrogen fuel cells, will also have an effect on demand for oil. Analysts at Citi, a bank, calculate that if the fuel-efficiency of cars and trucks improves by an average of 2.5% a year it will be enough to constrain oil demand; they predict that a peak of less than 92m b/d will come in the next few years. Ricardo, a big automotive engineer, has come to a similar conclusion.

10. Today's quote
"You can lose lots of money chasing women, but you will never lose women by chasing money." - Chris Rock