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 is #1. It made me think about encryption a lot. And this Marketwatch piece documenting the rise in the US 10 year Treasury yield over 3% for the first time in 2 years is noteworthy.
1. Not so safe - The Guardian, the New York Times and Pro-Publica have published a bunch of articles overnight from fresh Edward Snowden leaks showing how the NSA is cracking the encryption codes used to protect bank records.
I would have thought banks and their customers would be very interested in this.
The enormous growth of online banking and electronic transactions depends on trust.
The latest revelations can only undermine that trust.
This story might be about to go a little more mainstream. Why would anyone trust encryption ever again?
US and British intelligence agencies have successfully cracked much of the online encryption relied upon by hundreds of millions of people to protect the privacy of their personal data, online transactions and emails, according to top-secret documents revealed by former contractor Edward Snowden.
The files show that the National Security Agency and its UK counterpart GCHQ have broadly compromised the guarantees that internet companies have given consumers to reassure them that their communications, online banking and medical records would be indecipherable to criminals or governments.
The agencies, the documents reveal, have adopted a battery of methods in their systematic and ongoing assault on what they see as one of the biggest threats to their ability to access huge swathes of internet traffic – "the use of ubiquitous encryption across the internet".
Those methods include covert measures to ensure NSA control over setting of international encryption standards, the use of supercomputers to break encryption with "brute force", and – the most closely guarded secret of all – collaboration with technology companies and internet service providers themselves. Through these covert partnerships, the agencies have inserted secret vulnerabilities – known as backdoors or trapdoors – into commercial encryption software.
2. Double non-taxation - The G20's leaders are meeting at the moment in Russia and hopefully they can stop talking about Syria long enough to agree on an OECD plan to coordinate tax policies to stop big multi-nationals gaming tax systems and falling through the cracks in the tax net.
Here's the BBC with the story:
OECD secretary-general Angel Gurria said: "International tax rules, many of them dating from the 1920s, ensure that businesses don't pay taxes in two countries - double taxation. "This is laudable, but unfortunately these rules are now being abused to permit double non-taxation."
It is calling for greater international co-operation to close gaps that allows income to "disappear" for tax purposes.
3. The exhaustion of 'Big Bank' - Bill Gross' folksy monthly columns are usually worth a read. This month's piece talks about Hyman Minsky and the 'exhaustion' of the Big Bank and Big Government solution to the crisis. He also talks about baseball. A lot.
Life’s ballgame ended several decades ago for Hyman Minsky, author of “Stabilizing an Unstable Economy” and proponent of the notion that capitalism is inherently unstable, in part because of theshort term financing of long term capital assets such as bonds, buildings, plant and equipment. His stabilizing solution was for Big Bank and Big Government to intercede with monetary and fiscal pump priming, confident in the notion that if the priming was large enough and the pumping fast enough, that stability could at least be temporarily achieved. Yet Minsky played ball in another era, before steroids and corked bats. He legitimately could not foresee the time when what he labeled “Big Bank” and “Big Government” became so large and stimulation so excessive that eventemporary stability of a closed or an evolving global economy would be difficult to attain.
Over these five post-Lehman years, financial markets have grown leery of the medicine Dr. Minsky recommended to calm the symptoms, if not the disease, of capitalistic excess. During a crisis, Minsky’s solution was for Big Government to generate substantial fiscal deficits which in turn would stabilize corporate profits, financial asset prices and ultimately the real economy. In turn, and concurrently, he advocated the growth of Big Bank, by which he meant the ability of a central bank to lower interest rates and reserve requirements in order to stimulate private lending via the monetary channel. In combination, and if large enough, the two could stabilize asset prices and eventually produce an “old normal” 3–4% real growth rate in developed and presumably developing economies too. We have lived in a Minsky-based policy world for some time now, but unfortunately in a “New Normal” world of lower economic growth.
What perhaps Minsky couldn’t conceive of was the point at which debt, deficits and interest rates would go to such extremes that the creation of credit itself, which was and remains the heart of capitalism, would be threatened.
4. A protest in Christchurch - This is an interesting way to get your message across. Although I have to say the house in the picture looks OK.
5. China's 'social support fees' - China's one child policy is an enormous factor in China's demographic structure and therefore its economic future.
It's also a big way China's local governments raises money, it turns out. Families wanting more than one child have to pay a 'social support' fee.
Even though the social support fee is important for local government bodies, it is the family planning officials, who are responsible for collecting the fee, who are the biggest beneficiaries. According to a regulation issued by the State Council, the spending of the fee should be determined by treasury organs, in isolation from the system of fee collection.
Yet, as reported by the China Broadcasting Network, in many places, the treasury bureaus return much of the levied revenues to the family planning organizations upon receiving the fees. Some authorities even allow whoever collects the fee to keep part of it as personal income. Therefore, family planning organs and their personnel are greatly incentivized to collect the fees. Authorities in some regions even allow the extra births because their incomes depend on them.
Within this context, it is easier to understand why, despite strong public objection to the policy and academic proof of the policy’s long-term harm on China’s demographic structure, the strict birth control policy has remained resistant to reform. Softening the one-child policy means forcing the government itself to forgo its vested interests and finding a sustainable solution to the crisis of “hand-to-mouth finance.” Reforms must always be accompanied by resolutions to conflicts of interest and material compromises, and the impasse on China’s family planning policy is apparently not an exception.
6. Aunty Hekia and the very nervous Taniwha - Toby Manhire has had some fun in this NZ Herald column about the demise of Learning Media.
"Hello Uncle Bill! Hello Aunty Hekia!" said the friendly taniwha.
"Hurray!" cheered the children, who were also in the cave.
"What have you got there, Aunty Hekia?" asked the taniwha, cheekily.
Aunty Hekia grinned like a lawyer at the America's Cup.
"Following extensive consultation with stakeholders and assessment of resource allocation, a decision has been taken to undertake a wind-down process going forward," she said.
And here's BreakingViews with a nice explanation
8. Slowing credit growth - Further to #7, Bloomberg reports Chinese credit growth is slowing dramatically as the new leadership put on the brakes.
The moderation in credit after a record first-quarter financing boom stands to cap an economic rebound being driven by a recovery in confidence and Premier Li Keqiang’ssupport measures, such as faster spending on railways. Overcapacity and pressure to clean up debt loom as challenges, according to JPMorgan, which sees growth slowing to 7.2 percent in 2014 from 7.6 percent this year.
“There is less risk in the near term,” said Zhu Haibin, JPMorgan chief China economist in Hong Kong, who has worked at the Bank for International Settlements. “But this round of recovery will not be a strong one and won’t last long.”
9. The global decline of the labour share - Loukas Karabarbounis and Brent Neiman from the University of Chicago and NBER have written an academic paper pointing to a 5 percentage point slide in the labour share of income globally and what it might mean.
It's all consisent with the global drive from those on the centre/left to raise mimimum wages and to reinvigorate unions to try to redress the imbalance.
The global labor share has signi cantly declined since the early 1980s, with the decline occurring within the large majority of countries and industries. We show that the decrease in the relative price of investment goods, often attributed to advances in information technology and the computer age, induced rms to shift away from labor and toward capital.
The lower price of investment goods explains roughly half of the observed decline in the labor share, even when we allow for other mechanisms in uencing factor shares such as increasing pro ts, capital-augmenting technology growth, and the changing skill composition of the labor force.
As labor shares have declined, business earnings and corporate saving have increased. This large change in the ow of funds between households and rms may have important macroeconomic repercussions.
You betcha.
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