Here's my Top 10 links from around the Internet at 11 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 Larry Summers and the US Federal Reserve.
1. Make the guarantee explicit - It's good to see Australia is making explicit the government guarantee currently underneath its banks.
The SMH reports the Labor Government is about to announce a 0.05% insurance levy on bank deposits up to A$250,000.
This is a good idea.
It means the current government guarantee is paid for by the specific banks and depositors who benefit specifically.
New Zealand's banks are, in theory, not government guaranteed and no longer pay a deposit insurance levy. They did briefly from 2008 to 2011 when the 'emergency' scheme was put in place.
But that was quietly dropped and now New Zealand's banks are, in theory, naked.
But we all know in practice that if one of them got into trouble they would, of course, be bailed out by the government. The government has put a figleaf in place with the Open Bank Resolution process, but we all know a government with low debt would never use it.
That means New Zealand has an effective implicit government guarantee where taxpayers in general effectively subsidise the guarantee on depositors specifically. That's simply not fair and we should make that implicit guarantee explicit and fund it fairly.
Here's the SMH. The actual announcement is due later today, it seems.
From 2016, the year in which Labor has said the budget will be back in the black, it plans to introduce a 0.05 per cent levy on government-guaranteed deposits of less than $250,000.
Money raised would be placed in a government-managed fund - and could only be used to refund depositors, not for other types of spending.
The Reserve Bank and the International Monetary Fund support the levy being introduced because it would help the government meet the cost of a bank failure, with such schemes common internationally.
Reserve governor Glenn Stevens said in a March letter to then treasurer Wayne Swan that the move should be a priority as it would at least partially compensate ''the government for the risks it bears from these guarantees''.
2. Overcapacity in China - ChinaDaily reports on the one big reason why inflation of manufactured goods is not a problem for the forseeable future.
3. Could Guangzhou default? - Caijin asks where one of China's largest cities default on its debt?
Guangzhou, the capital of Guangdong Province with a GDP that ranked third last year among all Chinese cities, said on July 30 that it needs to pay loans worth almost 26.1 billion yuan this year. That is 19.37 percent of the city government's projected income for this year. The internationally accepted red line for this ratio is 20 percent.
It also announced figures that show its outstanding loans will exceed 134 billion yuan in December, up 17.3 percent from the end of last year. The city's forecasted income for this year is 134.7 billion yuan, in which case the ratio of its outstanding loans to income this year will be 99.5 percent. By both its own and international standards this ratio must not exceed 100 percent.
Local governments' debt is an issue that should draw “great concern”, as the governments “have no idea” how large the debt exactly is, Yu Yongding, a former member of the Monetary Policy Committee of the People's Bank of China, warned on Wednesday.
“Why I am so concerned about the debt issue? Because based on my experience of dealing with local governments, I am skeptical whether they are willing and are able to repay the debts,” Yu said at the Netease Annual Economist Conference.
He also cast doubt on China's property boom, saying property investment's share in total investment is too high. On one hand, China's overall house supply is abundant. On the other, a considerable number of urban residents cannot afford a house because of skyrocketing prices.
It would be great if Chinese reporters, bloggers, citizens’ groups and, yes, Internet-empowered mistresses could expose corruption in ways that help make that transition both necessary and possible. But these virtuous civil society actors will only succeed if they find allies in the Communist Party, if they can empower those party cadres who understand the risk to stability, and to their party’s future, posed by runaway corruption.
The Ji and Fan story is very entertaining. But if it is just the tip of an iceberg of corruption that destabilizes China, it won’t be a laughing matter. How Chinese officials behave or misbehave not only will affect us — from the value of our currency to the level of our interest rates to the quality of the air we breathe — it may be the biggest thing that affects us outside of our own government.
6. The 'xenophobia' cheap shot - Gareth Morgan hits back at those who accused Labour of xenophobia with its policy banning non-resident purchases of houses.
Critics say we don’t know if foreigners are buying up large so therefore we don’t have a problem – we simply have a “solution in search of a problem” (See House policy ‘reeks of xenophobia’ – Stuff)
It’s crazy to say that because we don’t have data about the extent to which foreign buyers are snapping up New Zealand houses, we don’t have a problem. We may or may not have a problem, we don’t know.
But we certainly have the risk of one. If New Zealand’s housing market is getting swamped by foreign money, depending on the type of investor we are dealing with, that could be bad news for the economy.
Having an effective pre-emptive policy in place to reduce this risk is justifiable (but that’s not to say Labour’s particular policy is likely to be effective). The alternative of doing nothing until we’re certain we have a problem is a classic example of bolting the gate once the horse has bolted.
If in fact foreign money isn’t flooding in to New Zealand housing, at worst the pre-emptive policy will be redundant and the costs involved in implementing it wasted – hardly an excessive price for reducing potentially serious economic risks.
7. The big winners - Here's a great HuffPo graphic on the big winners in the multi-national tax minimisation world.
8. Fuel dockets and competition - The ACCC is looking at the anti-competitive risks of the fuel docket practice in Australia. Worth watching from over this side of the ditch.
9. Larry Summers and the Fed - It looks like his campaign to get the top job has failed.
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