Here's my Top 10 links from around the Internet at midday 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 #2 on the need to increase the wage share in developed economies such as the UK and US.
1. India's 'Black Friday' - Over the last six years we've seen financial crises break out in the strangest places and at the most unexpected times.
Who would have thought back in 2007 when everyone was patting everyone else on the back about the death of the recession and endlessly strong and low inflationary growth that we'd endure a series of crises breaking out in the likes of Iceland, Ireland, Greece, Portugal, Spain, California and Florida.
Now India and Indonesia are in crisis mode as their currencies slump.
Foreign investors who piled their money into India and Indonesia during the emerging markets boom of the last four or five years are now worried about their current account deficit and foreign debt, particularly as many rush back to invest in America in the wake of the spike in bond yields.
Here's The Washington Post on India's 'Black Friday'. Maybe the New Zealand dollar needs its own haka. The rupee seems to share the throat-slitting gesture used in Kapo o Pango.
The currency has become a powerful metaphor for India’s rapidly sliding economy. The rupee has triggered countless jokes and political mudslinging, and like everything in India, it has generated astrological speculation, too.
Some superstitious Indians have blamed the slump on the new symbol for the rupee, which was unveiled last year. Experts on vastu shastra, an ancient Indian design practice similar to feng shui, say that the symbol debuted on a day inauspicious for the stars and that the horizontal line across the symbol appears to “slit the throat” of the currency.
Some economists, meanwhile, blame the rupee’s recent misfortune on plans by the U.S. Federal Reserve to begin scaling back its massive effort to stimulate the U.S. economy, which has tended to keep the dollar weak compared with other currencies.
2. 'Raise the wage share' - Academic Stewart Lansley writes in The Guardian about the problem of a low wage economy.
According to the still dominant economic orthodoxy, the shift from wages to profits should have boosted investment and productivity. Yet in both the UK and the US, booming profits have been associated with falling investment. This is because the sustained squeeze on wages has created a number of highly damaging economic distortions. It has sucked out demand and encouraged debt-fuelled consumption. Because labour is cheap, firms have less incentive to invest in training and become more productive, helping to turn the UK into an increasingly low value-added and low-skilled economy.
Instead of the boost to wealth and job-creating activity promised by economic theorists, the Anglo-Saxon economies have created a series of asset bubbles while allowing a boom in wealth-diverting schemes – from lucrative but unnecessary merger activity to private equity takeovers – that have squeezed the wage base, enriched the few and stifled productivity.
Even discussion of the 'distribution question' – how to divide the cake between wages and profits – has been dismissed as heresy by market theorists. "Of the tendencies that are harmful to sound economics, the most poisonous is to focus on questions of distribution" is how Robert E Lucas, the Chicago-based Nobel Laureate and the principal architect of the pro-market orthodoxy, put it in 2003.
Yet the evidence is overwhelming: an excessive imbalance between these key economic aggregates leads to fragile and unstable economies and will prevent sustainable recovery. To overcome this imbalance requires a new economic model that returns the wage share closer to its post-war level, with big firms devoting more of their profits to pay.
3. About over-population - This Slate piece has been around for a couple of months, but it's a nice in-depth look at long term global population trends and the likelihood of peak people around 2070.
Maybe this is one way we start to deal with peak resources.
If the Germany of today is the rest of the world tomorrow, then the future is going to look a lot different than we thought. Instead of skyrocketing toward uncountable Malthusian multitudes, researchers at Austria’s International Institute for Applied Systems Analysis foresee the global population maxing out at 9 billion some time around 2070. On the bright side, the long-dreaded resource shortage may turn out not to be a problem at all. On the not-so-bright side, the demographic shift toward more retirees and fewer workers could throw the rest of the world into the kind of interminable economic stagnation that Japan is experiencing right now. And in the long term—on the order of centuries—we could be looking at the literal extinction of humanity.
That might sound like an outrageous claim, but it comes down to simple math. According to a2008 IIASA report, if the world stabilizes at a total fertility rate of 1.5—where Europe is today—then by 2200 the global population will fall to half of what it is today. By 2300, it’ll barely scratch 1 billion. (The authors of the report tell me that in the years since the initial publication, some details have changed—Europe’s population is falling faster than was previously anticipated, while Africa’s birthrate is declining more slowly—but the overall outlook is the same.) Extend the trend line, and within a few dozen generations you’re talking about a global population small enough to fit in a nursing home.
4. Double Oops - Archdaily reported the rather excitable developers of a skyscraper in Benidorm decided they would double the height of the fancy double-barreled structure pictured below. But they forgot to create bigger spaces for more powerful lifts, so the top half of the building can't be used. Update. Turned out this story was too good to be true, barcepundit reported. My apologies.
5. When power demand flattens - Stuff reports Contact Energy announced yesterday it was dropping plans for a big new windfarm in the Waikato.
6. Not so reliable - Marketwatch reports Chinese economic data may overstate Chinese GDP by around US$1 trillion or 8% to 12%.
"There is strong evidence indicating that the rate of real Chinese GDP growth, and ultimately total real GDP, may be significantly over stated," said Christopher Balding, associate professor at Peking University's HSBC Business School, and the report's author.
Through "significant and systematic irregularities", official estimates overstate China's true GDP by 8 to 12 percent, or $1 trillion, according to Balding.
7. What happens when interest rates rise - Economonitor reports US mortgage approvals have slumped since early May as long term interest rates have risen. Fixed mortgage rates in America are based on long term wholesale mortgage rates.
Mortgage applications have been on a brutal decline that started in early May. For the week ending August 9, the Mortgage Bankers Association’s Composite Index dropped 4.7%, with the Refinance Index down 4% and the Purchase Index down 5%. It isn’t a fluke. Mortgage applications have plunged 50% from early May and have hit a level not seen since April 2011.
Average interest rates for 30-year fixed-rate mortgages, at 4.56%, are nearly a full percentage point higher than in early May. These higher rates have been colliding with much higher home prices. Result: a dizzying jump in mortgage payments. Sticker shock for prospective buyers.
8. 'Strategic nepotism' - FT reports US authorities are investigating JP Morgan Chase for corruptly employing the children of China's leaders, often known as 'Princelings'.
What John Foley of Breaking Views dubs “strategic nepotism” is widespread in China: gaining contracts is a lot easier with the help of a well-connected official, or the son or daughter – or even cousin – of the right person.
Western banks hire the princeling class, although they are finding it harder than they used to as China develops its own private equity groups, and so do Chinese companies. It is taken for granted that this is how business gets done.
It’s an untested question as to whether such practices amount to a breach of the US Foreign and Corrupt Practices Act or the UK Bribery Act. Since no money changes hands, apart from a salary and bonus, it isn’t a clear-cut offence, but there is clearly something murky going on.
9. North Korea's P problem - WSJ reports some things just can't be kept out, even in the world's most repressive and cut off country.
This turns out to be an export industry that turned on its host... Mercantilism has a lot to answer for.
North Korea is experiencing a “drug epidemic,” according to a study published in the Spring 2013 edition of the journal North Korea Review.
“A New Face of North Korean Drug Use: Upsurge in Methamphetamine Abuse Across the Northern Areas of North Korea” explains how during the past several years meth production has gone from government-owned factories to privately run underground laboratories and “home kitchens.”
According to the report, it’s not the first time that a drug originally intended for export into China and beyond ended up flooding North Korea’s domestic market.
(Updated with link to correct Spanish elevator story)
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