Here's my edition of Top 10 links from around the Internet at 10:00 am today. We now have a Monday-Wednesday-Friday schedule for Top 10.
Bernard will be back with his version this Wednesday. We will have another guest posting on Friday.
As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.
See all previous Top 10s here.
1. 'A major crisis on our hands'
Things are not looking bright for rural Australia. Land prices are too high and to shift them to sensible levels will involve an earthquake that will see financial fatalities.
A Government minister sees the solution in a new rural bank - in what obviously will become a 'bad bank'.
Land price bubbles have consequences and we are about to see them play out here. It could be ugly.
The Australian has a major report:
Agriculture Minister Barnaby Joyce has vowed to wage a "mighty battle" in cabinet to convince his colleagues to sign off on a $7 billion bailout of "distressed" farm loans and avert a "complete and utter financial meltdown".
Addressing a packed crisis meeting of farmers in southwest Queensland on the weekend, Mr Joyce warned that rural debt in Australia had reached an unsustainable level of $70bn and that 10 per cent of it was unlikely to be repaid.
Much of their report is behind a paywall. But BankingDay has a summary:
A senior federal minister is expecting a significant default on farm sector loans and backing plans for a dedicated rural bank. The Australian reported that Barnaby Joyce, the minister for agriculture, told a forum in Queensland over the weekend that "with rural debt, we have a major crisis on our hands."
"If we just let an [unfettered downwards] correction to land values happen, we will have complete and utter financial meltdown."
"Once it became obvious that someone's debt was now [higher] than the value of their asset [farm], the banks would call in their debts and want their money back, farmers would be unable to pay and would walk off their land, and we would have a run on the banks," the newspaper reported that Joyce said.
"This is a massive crisis; agriculture is a viable industry with a tremendous future [so] we must come up with a plan of how to deliver better outcomes for farmers that keep people on their land right now."
A "viable industry" with a "tremendous future" and it can't pay back its borrowing? Doesn't make sense to me.
What is also interesting is that the level of Aussie rural debt is revealed at A$64 billion, with $60 billion provided by banks. New Zealand rural debt is now at NZ$51.8 bln, or 80% of the Aussie level. But no talk here of a rural credit bailout.
However, the land-price lesson may be the key one to watch.
2. Perhaps some disruptive business models are just plain unsafe
As disruptive start-ups in industries like travel, phones, and the like continue to grow and transform traditional services, questions of risk and regulation are likely to become more important - and more so when they involve airlines and some would say, finance. (Here's a report from earlier last week on how a disruptive ticket-selling travel model resulted in six deaths in Ireland on 2011.)
All regulated industries are inefficient: regulation cannot help but add a layer of bureaucracy to any organisation, and no one ever hired a compliance officer as a way of boosting productivity.
This creates a natural inclination on the part of entrepreneurial types to want to disrupt the industry in question says Felix Salmon. They look, they see all that inefficiency, and they know they can produce 90% of the output with 10% of the overhead - so long as they themselves are not regulated or taxed. Salmon makes the important point that from society's perspective, sometimes 90% or even 99% just isn’t good enough. Airlines are a good example: thanks to regulation, they’re incredibly safe.
In finance, regulation is very important indeed - if you want to prevent everything from terrorist finance to global financial meltdown, central authorities need to be able to keep tabs on all financial flows. Finance startups generally operate in a lightly-regulated grey area, just because compliance costs tend to be prohibitively high if you want to, say, start a bank. That explains why Simple isn’t a bank; why most microfinance shops don’t accept deposits; why Apple didn’t storm into the payments space years ago; why it’s so difficult for startups to compete with PayPal, which has spent many years and hundreds of millions of dollars on global compliance; and so on and so forth.
Actually, if there's one company New Zealand bank execs should lie awake at night worrying about, its PayPal. They are good to go, right now.
3. If growth is over, efficiency is the new target
It is not only the eco-left who are saying the global economy’s glory days are over. Policymakers continue to focus on short-term demand management in the hope of resurrecting the heady growth rates enjoyed before the 2008-09 financial crisis. This is a mistake says Marek Dabrowski who was First Deputy Minister of Finance under Poland’s first post-Communist government.
Thus, with supply-side factors no longer driving global growth, we must reassess our expectations of what monetary and fiscal policies can achieve. If actual growth is already close to potential growth, then continuing the current fiscal and monetary stimulus will only create more bubbles, exacerbate sovereign-debt problems, and, by reducing the pool of global savings available to finance private investment, undercut long-term growth prospects.
Instead, policymakers should focus on removing their economies’ structural and institutional bottlenecks. In advanced markets, these stem largely from a declining and aging population, labor-market rigidities, an unaffordable welfare state, high and distorting taxes, and government indebtedness.
The list of growth obstacles in emerging markets is even longer: corruption and weak rule of law, state capture, organized crime, poor infrastructure, an unskilled workforce, limited access to finance, and too much state ownership.
In addition, markets of all sizes and levels of development continue to suffer from protectionism, restrictions on foreign capital flows, rising economic populism, and profligate or poorly targeted welfare programs.
If these problems can be addressed, both globally and at the national level, we can end the dangerous fiscal and monetary expansionism on which the world economy has come to rely and allow growth to be sustained over the long term – though at lower rates than in recent years.
4. NZ a leader or follower?
Giulio Boccaletti is the managing director for Global Water at The Nature Conservancy. He wants the world to do what New Zealand is starting to do - storing fresh water for agricultural and city use.
The 2013 World Economic Forum Global Risks report identified “water supply crises” as the biggest “societal risk” to global prosperity. According to some estimates, meeting the needs of a growing global economy will require the world to begin devoting at least $1 trillion annually to water infrastructure within the next 20 years – roughly double the level of annual spending today.
Since 2000, when the United Nations Millennium Development Goals (MDGs) were adopted, the global community has rightly focused significant attention on providing access to basic water and sanitation services. From 1990 to 2010, more than two billion people gained access to improved water sources. As the United Nations prepares to adopt so-called Sustainable Development Goals as the post-2015 successor to the MDGs, the high-stakes business of large-scale water infrastructure should be placed front and center.
5. Will Marx return?
The voices of the old left can still make themselves heard. Usually protected by tenure, they can still summon up a headline about 'the race to the bottom' from trade agreement negotiations. The problem is, the evidence points the other way. Yes, income disparities are growing within nations, but as been pointed out here before, there is a remarkable reduction underway of income disparity between nations on a per capita basis; Bill Gates pointed it out a few weeks ago too.
It's remarkable because many, many big 'poor' nations are rising, rather that the 'rich' ones declining. It's a race up, not down.
Here's Charles Kenny in Foreign Policy from an article someone labeled 'Marx is Back', but which actually says something quite different.
Globalization may have been the watchword of the 1990s, but it's still a work in progress. As interconnected global markets get ever more interconnected, average incomes are converging. The last 10 years have seen developing countries grow far more rapidly than high-income countries, closing the gap in average incomes. Economist Arvind Subramanian estimates that China in 2030 will be about as rich as the whole European Union today and that Brazil won't be far behind, clocking in at a GDP per capita of around $31,000. Indonesia, he reckons, will see a GDP per capita of $23,000 -- about the same as tech powerhouse South Korea today.
Marx predicted that the global working class would unite and revolt because wages everywhere would be driven to subsistence. But as wages increase and level out around the world, the plight of the proletariat -- hard work, low pay -- today more than ever means easier work and better pay. And it's bringing hundreds of millions of people, in China alone, out of poverty. Clearly, the communist revolutions of the first half of the 20th century proved far, far worse for living standards than the well-regulated markets of the latter half.
6. The knack for slack
Struggle to get everything done? Don't worry, you are not alone in that. And Brooke Allen says you shouldn't worry about the stuff you don't get done. In fact, he has ten great reasons on how to manage getting things done which are well worth a read (it's short).
The core point is, he still gets lots of things done, its just the way he looks at it. Its no justification for the lazy. Here's one that caught my eye:
To-do lists are best if you cannot remember where you put them.
The great thing about writing something down is that your subconscious brain will stop obsessing about it and you can relax and go to sleep or the movies or whatever. But the bad thing about to-do lists is that you might feel compelled to do all those things. Luckily, I’m great at making and losing lists. The list helps me get to sleep tonight, and then tomorrow when I cannot find it I only do what I remember to do, which turns out to be the important things.
Also, keep “did” lists. If you track all you’ve already done, the little bit still to do will seem less daunting.
7. 'We don't want to pay anymore'
For those of us who use MSExcel a lot, moving to cloud-based open-source spreadsheets just doesn't seem right, safe, or even come with the same functionality we have developed as native skills.
But I am sure it must be ok to make the switch. The British Government has said it will be doing it, and they wouldn't be making a mistake would they.
8. Thinking big
The tunneling for the Waterview Connection in Auckland is now in full swing. More than 150m has been completed in an impressive start. The Waterview Connection will create a direct motorway link between the central business district and international airport. It is New Zealand’s biggest road project ever, with a construction budget of $1.4 billion. The tunneling machine was custom built and with a cutting head diameter of 14.4m, 'Alice' is the world’s 10th largest ever Tunnel Boring Machine. 87m long and weighing 2,200 tonnes, she has a top speed of 0.005km/hr.
The benefits for Auckland will be significant, far outweighing other 'public transport' projects including the equally costly electrification of Len's train set.
But we must not forget that the central tunnel project is a piece of political quackery. Most of the project is on the surface except for this 2.5 km tunnel. And we have a tunnel in the suburbs because the local MP at the time didn't want to risk the NIMBY ire of some core supporters. More than 800 houses were threatened. In the end about 200 have been removed. 'Fortunately', when her Government lost the election, the super-expensive tunnel option was retained as part of a 'road of national significance' because public projects were required during the GFC stresses. A well-run Board of Inquiry confirmed the option. Now we are left with an endless obligation to maintain a tunnel and its expensive air-filtering processes, forever.
Having said that, from an engineering perspective, it is impressive. It will halve my travel time to the airport. Thank you, New Zealand taxpayers.
9. Twins?
Is it just us, or are they related? We will know when the US Fed raises rates to 2.2% within two years ;) (H/T David H.)
The new Chairman of the US Federal Reserve, Janet Yellen (left), and iconic cricket commentator Richie Benaud (right)
10. Today's quote
"Bottoms in the investment world don't end with four-year lows; they end with 10- or 15-year lows." - Jim Rogers
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