Here's my Top 10 links from around the Internet. 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 #8 from Prospect on America's unrecognised 40 year slump that started in 1974.
1. Third Plenum watch - The details are now coming out thick and fast from the China Communist Party's crucial 'Third Plenum' meeting a couple of weeks ago.
We've had a watering down of the one child policy, but the biggest changes are pro-market economic reforms.
This is the biggest news for New Zealand's economy in a long time, but there's hardly any coverage anywhere here.
It's one of my biggest complaints these days about New Zealand's media. We have foreign correspondents giving us the latest on the royal family, Miley Cyrus and Sonny Bill Williams, but very little on what Xi Jingping is doing to/for our economic outlook.
So I'll point you all to a few articles looking at what it means.
Here's the WSJ explaining the capital market reforms.
The most impressive promises concern the capital markets. The push to make the yuan convertible combined with the relaxation of controls on interest rates mean that financial institutions, including the state-owned banks, will be forced to compete for deposits and lend on the basis of risk-adjusted returns. That should drive credit toward the most productive enterprises and over time reduce the Communist Party's control over the business elite.
The prospect of companies being allowed to list their shares freely is revolutionary. China's stock markets have largely been a tool for state-owned enterprises to raise cheap capital. Soon they will have to compete for investors' favor against entrepreneurs who are currently forced to look abroad to list their shares.
And here's a useful cheat sheet from FTAlphaville on what the Third Plenum came up with.
2. The amazing Rob Ford - Suddenly Canada has become interesting because of a crack-smoking mayor with potty mouth and a large girth. Here's an excellent Bloomberg BusinessWeek piece on how Rob Ford came to be Mayor and how was dead in the water politically well before the crack-smoking video et al surfaced.
Here's how he got elected:
In 2010 Ford won election mostly on his campaign promise to “Stop The Gravy Train” of coddled bureaucrats, decadent city councilors, and municipal unions—all of whom, in Ford’s eyes, were draining the city of its lifeblood. He was the last angry man, who respected the taxpayer’s hard-earned dollar above all else and tapped into a sense of frustration from those left behind by the city’s rapid growth. Housing was absurdly expensive for many, commutes were excruciatingly long, and home buyers despised the land transfer tax that Ford’s left-wing predecessor, David Miller, had instituted to reduce the city’s deficit.
Ford promised to lower property taxes, slash city spending, clip the wings of unions, and bring a sense of fiscal discipline and private-sector professionalism to the city, all without cutting city services.
3. We're famous! - Former US Budget bigwig Peter Orszag has written an opinion piece in Bloomberg lauding the Reserve Bank's success in fighting our property bubble as a model for the world. He might have called the bursting a bit early... He was here for a few days last week.
The Reserve Bank of New Zealand deserves credit. As I learned from conversations in Wellington last week, the mortgage limits are controversial. But they seem likely to help head off a crisis or contain the damage should one occur. Think of how much better off the U.S. economy might have been if the Fed had tried that.
4. A new normal? - Paul Krugman asks a deeply unsettling question in his New York Times column: what if the US perma-recession is the new normal and lasts for decades to come? It's not just the nutters who are saying this now.
You might imagine that speculations along these lines are the province of a radical fringe. And they are indeed radical; but fringe, not so much. A number of economists have been flirting with such thoughts for a while. And now they’ve moved into the mainstream. In fact, the case for “secular stagnation” — a persistent state in which a depressed economy is the norm, with episodes of full employment few and far between — was made forcefully recently at the most ultrarespectable of venues, the I.M.F.’s big annual research conference. And the person making that case was none other than Larry Summers. Yes, that Larry Summers.
Look at household debt relative to income. That ratio was roughly stable from 1960 to 1985, but rose rapidly and inexorably from 1985 to 2007, when crisis struck. Yet even with households going ever deeper into debt, the economy’s performance over the period as a whole was mediocre at best, and demand showed no sign of running ahead of supply. Looking forward, we obviously can’t go back to the days of ever-rising debt. Yet that means weaker consumer demand — and without that demand, how are we supposed to return to full employment?
Again, the evidence suggests that we have become an economy whose normal state is one of mild depression, whose brief episodes of prosperity occur only thanks to bubbles and unsustainable borrowing.
6. Learning to love the bomb - I grew up in the early 1980s genuinely worried about nuclear annihilation. People don't think about it much anymore.
Maybe they should because the bombs are still largely there and still powerful enough to annihilate.
This piece from John Horgan in Scientific American is useful, as is this link to NUKEMAP, which uses a bunch of data to let you work out for yourself what nuclear bombs could do.
7. Bitcoin and fraud - Bitcoin prices are at record highs again, but it remains the wild west.
Or maybe the wild east. A new Chinese bitcoin fraud was revealed this week, via NY Times Sinosphere, which in its background describes why Bitcoin is up so much.
In hindsight, there were numerous red flags that should have alerted GBL’s bamboozled investors. On May 27, just days after GBL was founded, a popular Chinese bitcoin forum pointed out that the company claimed to be based in Hong Kong, but in fact was using servers located in Beijing. In addition, GBL lacked an official company email address and did not have a license to provide financial services.
The willingness to invest in GBL despite its shortcomings demonstrates just how popular “crypto-currency” has become in China. In early November, BTC China overtook Mt. Gox and Bistamp to become the largest bitcoin exchange site in the world, handling 34 percent of global bitcoin transactions over the previous seven days, according to data from Bitcoinity.org, a website that tracks bitcoin exchanges.
Bitcoin’s appeal to Chinese investors is manifold. The currency experienced a major spike in value in July shortly after being the subject of overwhelmingly favorable reports on CCTV, China’s state-run television station, and People’s Daily, the main Communist Party newspaper. The currency received a further boost in October when the Chinese search engine Baidu, which commands more than 80 percent of the Chinese search market, announced a plan to accept bitcoins as payment for its online security and firewall services.
8. Work in the age of anxiety - Here's an excellent Prospect piece on America's 40 year slump (for most people) that started in 1974.
What no one grasped at the time was that this wasn’t a one-year anomaly, that 1974 would mark a fundamental breakpoint in American economic history. In the years since, the tide has continued to rise, but a growing number of boats have been chained to the bottom. Productivity has increased by 80 percent, but median compensation (that’s wages plus benefits) has risen by just 11 percent during that time. The middle-income jobs of the nation’s postwar boom years have disproportionately vanished. Low-wage jobs have disproportionately burgeoned. Employment has become less secure. Benefits have been cut.
As their incomes flat-lined, Americans struggled to maintain their standard of living. In most families, both adults entered the workforce. They worked longer hours. When paychecks stopped increasing, they tried to keep up by incurring an enormous amount of debt. The combination of skyrocketing debt and stagnating income proved predictably calamitous (though few predicted it). Since the crash of 2008, that debt has been called in.
All the factors that had slowly been eroding Americans’ economic lives over the preceding three decades—globalization, deunionization, financialization, Wal-Martization, robotization, the whole megillah of nefarious –izations—have now descended en masse on the American people. Since 2000, even as the economy has grown by 18 percent, the median income of households headed by people under 65 has declined by 12.4 percent. Since 2001, employment in low-wage occupations has increased by 8.7 percent while employment in middle-wage occupations has decreased by 7.3 percent. Since 2003, the median wage has not grown at all.
9. The drums are beating - The FT's Wolfgang Munchau is now saying Europe should consider printing money.
Would QE work? Once you hit the zero limit on interest rates, QE is the most effective policy instrument. It is not a cure-all – we know from the US how hard it is to curtail. But the alternative is worse. Without QE, the eurozone economy threatens to get stuck in an equilibrium of low growth and ultra-low inflation, or even outright deflation. And if you are worried about the impact of QE on financial stability, you might want to consider the impact of a long depression.
The case for quantitative easing is overwhelming.
10. Totally Clarke and Dawe on Tony Abbott's responsibilities as head prefect.
(Updated with cartoons)
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