![<a href="http://bit.ly/107VHl0">Five key reasons people buy gold and silver</a>](/sites/default/files/styles/full_width/public/feature_images/nz-mint-new-featured-image_1_0.jpg?itok=6c0lyQu_)
Here's my Top 10 links from around the Internet at 11 am in association with NZ Mint.
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 reads today are numbers 6 and 7 on the prospects for deflation rather than inflation. Everyone assumes mass money printing causes inflation. What if it doesn't and can't offset the deflationary forces of household deleveraging, ageing, technological unemployment and globalisation?
1. The end of Austerity - Anatole Kaletsky at Reuters writes about how Britain has essentially given up on its austerity strategy.
Economies with heavy private sector deleveraging are clearly contracting when governments cut spending and increase taxes.
The multiplier effects seem much bigger than expected when households in particular are on debt reduction drives.
It just reinforces the idea that households and governments can't be deleveraging at the same time.
When they do, recession or worse is inevitable. New Zealand's government is planning 3.2% of fiscal contraction over the next 4 years. That makes sense when households are leveraging up. However, the sustainability of that leveraging up is questionable when household debt to disposable income is already at painfully high levels and ticking up again towards 150%.
The Age of Austerity is over. This is not a prediction, but a simple statement of fact. No serious policymaker anywhere in the world is trying to reduce deficits or debt any longer, and all major central banks are happy to finance more government borrowing with printed money.
After Japan’s election of Prime Minister Shinzo Abe and the undeclared budgetary ceasefire in Washington that followed President Obama’s victory last year, there were just two significant hold-outs against this trend: Britain and the euro-zone. Now, the fiscal “Austerians” and “sado-monetarists” in both these economies have surrendered, albeit for very different reasons.
2. The price of corruption - This is sort of funny. Bloomberg reports shares in France's Pernod Ricard slumped in the last week after it revealed a crackdown on corruption in China had hammered sales of its champagne and cognac...
Coppere, speaking today on a webcast with analysts, said the distiller still saw “high single-digit volume growth” over Chinese New Year for Martell cognac, but that demand for whisky was affected by measures implemented by China’s new government to limit excessive gift-giving and banqueting.
Distillers including Pernod and Remy Cointreau SA (RCO) have benefited from demand for their higher-priced spirits in China, particularly cognac, as sales growth becomes tougher to achieve in the straitened economies of Europe. Chinese President Xi Jinping has been cracking down on extravagant gift-giving and feasting by businessmen and government officials.
3. Why no Wall St executives have been jailed - Here's a compelling PBS documentary called 'The Untouchables'. HT Andrew Patterson.
Watch The Untouchables on PBS. See more from FRONTLINE.
3. In praise of gentle inflation - David Pilling writes an excellent column here at FT.com about Japan's new strategy of trying to increase inflation to transfer wealth from old savers to younger workers.
One objection to “Abenomics”, the reflationary creed adopted by Japan’s new government, is that it will erode hard-earned savings. Instead of simply grabbing them over the weekend – as has become fashionable in certain parts of Europe – the government hopes to siphon them off gradually through gentle inflation. This is a dastardly plan. It is unlikely to prove popular with the over-60s, who make up a quarter of Japan’s population, but who control two-thirds of its vast household assets. It is a good idea all the same.
The reason for welcoming this intergenerational theft is that, for 20 years, Japan has prioritised the interests of older generations over younger ones. That is not only unfair. Penalising youth is also not the best way to build a nation’s future. Taxing the old through inflation is one way to redress what has been a long squeeze of one generation by another.
4. Preparing for war - Reuters reports Japan and the United States are preparing for war with China over the Senkaku/Diaoyu Islands.
Seriously. Keep an eye on this. Everyone assumes no one will pull the trigger, but there are a few trigger happy generals around these days.
Japan and the United States have started talks on operational plans in the case of armed conflict over a group of East China Sea islets claimed by Tokyo and Beijing, Japanese media said on Thursday, prompting China to complain of "outside pressure".
The dispute in recent months had escalated to the point where both sides scrambled fighter jets while patrol ships shadow each other, raising fears that an unintended collision or other incident could lead to a broader clash.
5. The United States of Inequality - Timothy Noah has done an excellent job here at Slate of picking apart the amazing growth in inequality in America over the last 20 years. This chart tells the story.
All my life I've heard Latin America described as a failed society (or collection of failed societies) because of its grotesque maldistribution of wealth. Peasants in rags beg for food outside the high walls of opulent villas, and so on. But according to the Central Intelligence Agency (whose patriotism I hesitate to question), income distribution in the United States is more unequal than in Guyana, Nicaragua, and Venezuela, and roughly on par with Uruguay, Argentina, and Ecuador.
Income inequality is actually declining in Latin America even as it continues to increase in the United States. Economically speaking, the richest nation on earth is starting to resemble a banana republic. The main difference is that the United States is big enough to maintain geographic distance between the villa-dweller and the beggar. As Ralston Thorpe tells his St. Paul's classmate, the investment banker Sherman McCoy, in Tom Wolfe's 1987 novelThe Bonfire of the Vanities: "You've got to insulate, insulate, insulate."
6. Why global economies face an age of Deflation - Here's Gary Shilling with his view via Bloomberg on the great debate about inflation vs deflation.
I'm in the camp that says (consumer price) deflation is more likely because of the triple drags of ageing populations, develeraging and flat to falling middle/lower incomes.
In recent years, monetary and fiscal stimulus across the world have led to the assumption that serious inflation, if not hyperinflation, is on its way. I believe chronic deflation is more likely.
In the 95 wartime years since 1749, wholesale price increases averaged 5.7 percent. In the 168 peacetime years, they fell 1.2 percent annually on average. As the U.S. withdraws from Iraq and Afghanistan and asdefense spending declines, peacetime conditions are likely to prevail.
Furthermore, we tend to have biases that cloud our perception of inflation. When we pay higher prices, we think inflation is at work, but we believe lower prices are a result of our smart shopping and bargaining skills.
The huge fiscal and monetary stimulus dispensed in recent years has staved off the onset of chronic deflation. For now.
The deficits created by this spending would be inflationary only if the measures occurred in a period of full employment and created excess demand. That isn’t the case in the U.S., where the large budget shortfalls are a response to private-sector weakness that has depleted tax revenue.
8. The bond rally without end - AP reports via New York Times on the amazingly robust demand for bonds despite stunningly low interest rates. It all makes sense if you think deflation is inevitable and you understand the power of ageing populations, who are congenitally driven towards low risk investments in bonds.
This is another reason why I think governments should take advantage of these low government bond yields to borrow to invest in infrastructure that drives productivity growth and efficiency gains.
Market pros call it the Great Rotation. That's the long-awaited scenario when investors take their money out of bonds and sink it into stocks.
It was the buzzword this month when the Dow Jones industrial average reached a record high. The idea was that investors were confident enough in the economy to shed their financial crisis fears and leave the safety of bonds. But it's not happening.
Money keeps flowing into bonds. Industry consultant Strategic Insight says U.S. bond mutual funds have attracted $64 billion in cash in the first two months of the year, just below last year's pace of $68 billion over the same period.
Even with low yields, bonds will continue to attract retiring baby boomers and others who want reliable income for daily expenses. The yield on the 10-year Treasury note — a benchmark — is hovering under 2 percent. Other types offer higher yields. Investment-grade corporate bonds yield 3 percent and riskier "junk" bonds yield just under 6 percent.
And many older investors don't really believe the stock market rally.
Justin Beal, a 39-year-old municipal fire inspector from Clovis, Calif., believes the stock market will continue to remain at or near record levels in the coming months. But that's partly due to the Federal Reserve's policy of maintaining historically low interest rates through its bond-buying program, he thinks. The program will have to be pulled back or ended at some point, potentially ending the stock market's surge.
"The records don't really mean a lot," Beal says. "The average guy needs to understand that you can't be jumping on the bandwagon at the end of the rally, when it's greed that's driving the market."
9. ACCC expects out of cycle rate cuts - Fairfax's banking reporter Clancy Yeates reports Australia's Competition Watchdog, as opposed to the Reserve Bank, expects the banks there to start passing on the benefits of lower funding costs on global markets in the form of out-of-cycle interest rate cuts.
This is yet more evidence for borrowers to keep pushing banks hard for cheap interest rates. The banks can afford it. Here's the ammo too at the RBNZ showing another rise in bank net interest margins in January.
Mr Sims, chairman of the Australian Competition and Consumer Commission, said he also expected banks to eventually pass on lower costs to borrowers.
''Logically if you, as it were, push up rates independently of the Reserve, there must come a time when you push them down,'' he said this week. ''I think it would be absurd for it to be otherwise.''
Wholesale funding costs have fallen to their lowest level since 2009, the RBA said this week. Some analysts also say competition for deposits is waning, giving lenders an opportunity to cut independently of the central bank.
10. Totally Stephen Colbert on the difference between Warren Buffett and Jimmy Buffett
The Colbert Report
Get More: Colbert Report Full Episodes,Indecision Political Humor,Video Archive
28 Comments
@Bernard,
Last week we had 6 (due to govt stealing the other 4 to help bale out the Bankers)
Now we have 11 (two no 3's)... is this Inflation or somehing more sinister.
Perhaps you are just feeling Lucky punk; as 3 is the Cinese lucky number!
Thank heavens our economists can count!
#6,7. Money printing has already wildly inflated world stock markets and that's where all the pension provisions are (not NZ yet but some would have us all in there too). When these go pop, given the looming demographic bulge of baby-boomers (a first ever in human history), Head for the Hills.
Ergophobia
Seems Cyprus has decided to go to the barber:
http://www.zerohedge.com/news/2013-03-24/rampapalooza-cyprus-troika-rea…
Bloomberg also saying a deal has been made, tentative at this stage though.
# 6 & 7. Assuming there are savers in the mix, lowering interest rates creates deflation. IE: Anybody relying on interest income is watching their balance sheet shrink. So from neutral perspective, it's a robbing Peter to pay Paul type thing. At worst, the deflation created amongst savers will eventually envelope everybody, and at best, I guess, the trickle down effect from debtors might actually work this time. For me, everything seemed to be better when interest rates were high. Now? Not so good.
#11 - David Chaston is wrong:
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10871994
How about a chart of hi-val jobs that are not being created?
How about a chart of investment in hi-val-add that isn't happening?
Fish and game on the RMA changes.
Future of freshwater fishing under threat
Dear Reel Life reader,
The present government is hell-bent on wrecking the RMA. The key points are as follows:
1. The RMA is being dramatically changed to allow the development and degradation of sports fish and game habitat by farmers and industry.
2. Lowland streams will have no legal recognition so will become 'farm drains'.
3. Water Conservation Orders will ultimately go, with their previously recognised habitat protection and recreation values lost in one- size-fits-all 'regional plans'.
4. Practically all the substantive case law that has been developed over the years around environmental protection (much of it with Fish & Game licence fees), will be lost.
5. Current protection of the habitat of trout and salmon will be scrapped.
This is a plea for all anglers to ensure they have their say on the future of the RMA, the only real safeguard we have against rampant, unsustainable development of the freshwater resources trout and salmon rely on for survival.
You only have until 5.00pm April 2, 2013 to submit on the RMA.
Submission on the equally devastating Freshwater Reform proposals must be received by5.00pm April 8, 2013.
Don't worry if you have never made a submission before – it can be as simple or as complex as you choose to make it, the most important thing is that you have a say.
Information on how to make a submission, suggested points to make in your submission, and where to send it are on our RMA resource page here.
Please, stand up for freshwater quality protection and the future of angling in this country – it's in your hands.
Bryce Johnson
Chief executive
Fish & Game NZ
The trout spawning stream at the back of the farm is no longer running - a few pools of water. We are not in drought nor do we take water for irrigation, neither does anyone else in our community take water for irrigation. So it's not looking promising for trout abundance around our farm.
Urging licence holders to have a say while denying those same licence holders a democratic right to elect Fish and Game executive is hypocritical.
Useta live in the Deep South meself - the drying-out is in some places a very long-term effect of darining the old peat swamps, and of the urge to run a tile up into every little hollow.
The old Drainage Board drains around Otautau were fully 8 metres deep in places, and took the better part of a century to drain the catchment. They stopped running only in the late 70's, and in another 20 years, central Southland had to irrigate.
Not sayin' that this is the case here.
Point is that there are some really long-running factors at work...
#4. Studying WW1's origins and it looks like the Kaiser lost the reigns on his generals. Looking at WW2 maybe Hitler was nominally in charge but his Generals were pretty close...
Ergo, the china sea could be similar, some chinese general in a big bunker or admiral will let his units get to close and then lose the plot and we have an oops.
In an intelectual way it will be interesting to see how long it takes the americans to sink the chinese fleet (US has the technological and the training edge by miles, chinese the proximity)...not long I suspect. Then will the American subs dodge the chinese anti-sub planes, then the dog fights as the Japanese and US planes try and beat off the chinese airforce....then it could just keep going......
ho hum.
may you live in interesting times....yes, a curse.
regards
The worst recession ever? Some interesting graphs about the UK economy
http://blogs.spectator.co.uk/fraser-nelson/2013/03/budget-2013-some-scary-graphs/
Bernard , I know you love to put the boot into the Americans for their apparent income and wealth inequality ....... you do so frequently , and yet in the USA the richest 10 % of income earners pay 48 % of all income tax collected by the IRS ....... in your beloved socialist France the top 10 % pay only 28 % of their country's total income tax ..... the French put the boot into the poorer and middleclass folk with high taxes on consumption and on energy ......
....... I know where I'd rather be , if I was on Struggle Street .....
#11
Private sector parasites The real “takers” in America are not poor people dependent on welfare, but the unproductive, rent-extracting richhttp://www.salon.com/2013/03/21/private_sector_parasites/
http://www.theatlanticcities.com/housing/2013/03/why-your-skyrocketing-…
Michael Lind is in good company with Michael Hudson. Nails it.
Unfortunately, with the exception of some leftist and liberal economic thinkers who distinguish “rentier capitalism” or “financial capitalism” from “industrial capitalism,” conventional political discourse doesn’t distinguish among profit-earning “makers” and rent-extracting “takers.” ....At the same time, the center-left, whose upscale supporters tend to be credentialed upper-middle-class professionals, tend to ignore the antisocial aspects of the rent-extracting schemes of the professional guilds — medicine, law and the professoriate — as well as of their elite accomplices, the credential-granting universities.
On the right, the greatest triumph of the rentier interests has been to redefine “capitalist” to mean, not productive entrepreneur or successful industrial company executive, but “anybody who makes money” — a category that includes not only investors in productive enterprises but also rentiers and a third category of speculators in unproductive assets
(Not talking about our illustrious PM I hope)
Bernard,
A couple of points on inequality in the US. First, poverty ain't what it used to be. Most so called poor people in the US have a car, a roof over their head, a/c and heating, cable tv, a microwave oven etc. And most remarkably, the US has become, or is on the verge of becoming the first nation in the history of humanity where the predominant diseases of the poor are diseases related to obesity, i.e diabetes. While the wealthy have certainly been getting richer in the US and around the world, in the US the poor have been getting better off as well, so the implication that because the rich are getting richer, by zero sum game definition the poor are getting poorer, is just absolutely false. Doesn’t mean that there aren’t a whole lot of issues etc to address, but the fact is that the poor are a hell of a lot better off than they used to be.
Secondly globalization and the internet have really accelerated wealth accumulation. Guys like MarkZuckerberg and LarryPage and
SergiBrin can come up with great ideas and instantly the world is their marketplace, not just their state or country. While this has accelerated the growth of inequality, it has generated huge benefits for the world and no one is worse off, which highlights the fact that measures of inequality, especially the gini coefficient can give an impression that is at best misleading or just plain wrong.
Cheers,
James
A number of reasons, perhaps the most astonishing is that the US Govt actually advertises Food Stamps on TV. I don't know if they still do it but I saw some ads on TV last year that were rather gob smacking. Imagine that, advertising welfare. Perhaps if you are a died in the wool leftist like Obama, and your modis operandi is, as one of FDR's guys so succinctly put it, "tax tax, spend spend, elect elect", then perhaps is makes perfect sense to increase dependency, but not to the rest of us.
Main reason is that this "recovery" sucks. Worst on record, due to bad policy settings. Monetary policy madness, rates too low for too long. Uncertainty created by near trillion dollar deficits as far as the eye can see, with the budget never balancing, constant threats of tax increases and more regulation, impending Obamacare train wreck (no one believes that insurance rates or costs are going down or that care will improve, big turnoff to employers thinking of hiring) Dodd Frank has slowed bank lending. Possibility of carbon taxes and the like. Lots of bad stuff out there.
With better policy settings the US would be growing at 5 to 7% as it has coming out of previous recessions, and that would lower unemployment and food stamps rates.
If you want to see how to get an economy growing just look at the red states. Or you could look at blue states and do the opposite. Either way it amounts to the same thing. Low simple tax structures, less regulation, less government. Pretty much the opposite of what you are recommending for NZ.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.