Weekend Links – 10th-11th May 2014

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Global Macro / Markets:

North America:





Latest posts by __ADAM__ (see all)


  1. Massive problems in China …


    Once market confidence goes … that’s it.

    This is a particularly well written article …

    Alarm bells are ringing on China’s property bubble | Business Spectator


    Where are the elementary structural assessments of the vulnerabilities of the Australian economy ?

    New Zealand’s Bubble Economy Is Vulnerable | Hugh Pavletich | Scoop News


      • notsofastMEMBER


        The Australian Housing Bubble has been built by Australia’s Australian Taxpayer Guaranteed Foreign Controlled Banks on a specially imported (and very expensive I might add) grade of quicksand that is guaranteed to support the housing bubble no matter what happens.

        Just ask the RBA and APRA, its clearly a case of she’ll be right mate.

        What could possibly go wrong???

      • The Fallout From China’s Property Downturn | The Diplomat


        Australian Federal Labour was going to get on to the housing bubble problem out of the 2007 election … remember ? …


        … and the new Key–led New Zealand Government was going to deal with the housing bubble problem out of the 2008 election … remember ? …


        Why were they let away with failing to do so ?

      • “It is remarkable how (NZ PM) Mr Key does not appear to recognise how dangerous this is …One would expect John Key to understand the housing market better than Labour politicians – but alas, he is struggling. The numbers speak for themselves. It is too dangerous to delay decisive action any longer – and indeed most unfortunate we didn’t start on this path following the 2008 election.”
        From your 2012 article, Hugh. Which is why I scratch my head when you suggest today that “the Key Government is doing something about the problem”. It isn’t. You knew it; I know it and with the election looming lip-service will be paid to the problem , that will again be shelved until 2017. “Special Areas in Auckland” isn’t the answer. Only tighter monetary control by the RBNZ and a freed-up land supply is.

      • Janet … I deserve to be severely told off by you !

        Your “tellings-off” are much appreciated.

        Take it from me (near 10 years and about 25,000 hours of voluntary time later) … I’m fed-up with kicking and cajoling politicians (and their grovelling mates … e.g the HIA) … as hopefully this partial history illustrates …


        … and since the release of the 1st Annual Demographia International Housing Affordability Survey back in early 2005 …


        At least we can say (and thanks to yours and so many others great efforts, with of course the great guys at MB) that we have their heads (those interested enough and involved) looking in the right direction here in the Antipodes (Australia and New Zealand), to get the required changes in place, when the proverbial hits the fan.

        At the other end of the political spectrum is California … where they wouldn’t know a house market from a horse market. And that was the epicenter of the ’07 GFC !

        China is way way bigger.

    • From that first link

      “Yang Bin, Chinese Communist Party Secretary at the School of Economics and Management, Tsinghua University: “China’s housing prices are too high. Even an average house would cost more than a villa in the United States. There is also polarization in the market. The wealthy will invest in housing overseas, and the poor can’t even afford a place to stay local.”

      While building new ghost apartment blocks for the off shore investors is good in theory, it is important to keep in mind just how unstable that demand might be.

      Of course, it is critical to note that in practice our hopeless government and FIRB are just standing by as this frothy demand distorts the market for existing houses.

      Oh – and our government guaranteed vampire banks are writing mortgages for these off shore speculators running from their imploding property markets.

    • Discussion with housing researcher colleague

      My response …

      … it is most interesting you should say that.

      Note I mentioned the Chinese candour within what I wrote back early January with …. China: Big Bubble Trouble | Scoop News . I made a particular point of emphasising that.

      My view is that the leadership and those in the know in China have been well aware for quite some time about the sheer destructiveness of housing bubbles. Now the wider populace does increasingly as well (note the NTV video at top of this thread and the Mao / Vanke speech … as just two examples).

      I am particularly impressed in how the Chinese are talking so openly about house prices and prices per square metre, build rates per 1000 population, median multiples etc etc in comparison with the affordable North American markets ( http://www.demographia.com ). The essential nuts and bolts structural stuff. Indeed the industry language.

      And when the Chinese fully understand there is a problem, they don’t mess around in dealing with it.

      They haven’t woken up to this remarkable “Chinese characteristic” in the West. People in New Zealand and Australia still haven’t a clue what the consequences of this are likely to be. They are about to find out.

      Initial comment from colleague …

      I was really surprised last time I went to a housing conference in Hong Kong to see the extent to which people (especially students) were prepared to get up and criticise their government. No-one would do it here. The mainland Chines were much more circumspect – but very sophisticated. Their Minister for Housing at the time, an attractive woman in her forties, got up and gave one of the best policy analyses I have heard. This was mid nineties so I suspect that confident and clever attitude has worked its way through the system.

    • GunnamattaMEMBER

      ‘…The media devolves every day. Often those working in are the ones ensuring it crumbles. The loss of the public’s trust is accelerated. They do their damage and they then feel they’ve evolved beyond it. Eventually the gamekeeper will become poacher.’

      He makes essentially the same points that many here make, but he makes them with such timeless artistry that I could spend entire weekends meandering along his prose. And, as a man who spent a long time in Taswegia, I would observe he makes some very pertinent points about the Island and further afield.

      • Idiottax I think is the old TasmanianRealEstateTrouble.

        It was run by a guy named Mark, and I think the Marked64 contributor.

        No need to praise him in 3rd person 🙂

    • intertubernet

      Awesome. I love anywhere that starts a post “Ok, there’s the inflammatory headline for Google purposes, now on with the article.”

  2. migtronixMEMBER

    So the London cabbies are going on protest against Uber, and what will potential passengers do when they can’t find a cab during the protest? Uber…

  3. migtronixMEMBER

    I know its the w/e but…

    Brazil’s iron ore exports to China surged by 45% year-on-year in April, according to figures released by the country’s foreign trade ministry, MDCI, on Friday May 9

    Spot 62% Fe iron ore prices fell to a near-two-year low on Friday May 9 as traders pushed for further sales amid weak demand

    The OTC iron ore market remained weak on Friday May 9, with prices remaining within ranges established on Thursday.

    Supply up demand down, what happens next?

    • notsofastMEMBER

      “Supply up demand down, what happens next?”

      The price goes down,

      or it may go up?

      If China sorts out its issues with its Trillionaire offshore financiers and patches up its relationship with Japan a little bit, which I believe will happen, I reckon all this talk of the Chinese Housing bubble blowing will turn out to be over blown. The CCP and the Chinese Economy cannot handle both absorbing the losses from a bursting housing bubble and rebalancing away from miss-allocative asset lead investment towards miss-allocative consumption spending at the same time. If the CCP gets its way it will want to get the rebalancing well underway before it deals with the unwinding of the housing bubble in a couple of years.

      I think the CCP will get its way.

      Iron Ore prices to defy gravity, that is hold or go up. Up is the new Down.

      • notsofastMEMBER


        Yeh I know, but I still see the price of oil going up up ($30 to $50) in the medium term, 1 to 2 years. The costs of oil exploration and production have gone up so much that they must eventually drive the oil price higher, if global oil (petroleum liquids) production is to continue to increase at the rate of about a million barrels a day. And I can’t see tight oil production in the US (nor anywhere else) changing this.

        A price drop to $70 a barrel in the short term is a possibility because it would really hurt the Russian economy but the problem with this approach is it could also hurt US tight oil production and fragile Middle Eastern economies that are reliant on a high oil price. A possibility but I still think unlikely.

      • If housing is in a bubble in China and it has largely been driven by local /provincial govt operations and their business/revenue models and it has proved resistant to increased controls (i.e. the rise of shadow banking was a response to attempts to control bank lending), it may not be possible for the CCP in Beijing to bring it under control.

        How does Beijing rebuild the business/revenue model of local/provincial governments right across the country that are dependent on the proceeds of a ponzi housing sector?

        After all it is possible that Beijing HAS been trying to rebalance and moderate the housing sector and has failed and all we are seeing now is a good old fashioned uncontrolled boom where prices throughly disconnected from fundamentals are running into a brick wall.

      • notsofastMEMBER


        I agree the CCP cannot keep its housing bubble from going bust by itself, it needs outside help. Help which I think it will get probably just in time before it all unwinds uncontrollably.

        “How does Beijing rebuild the business/revenue model of local/provincial governments right across the country that are dependent on the proceeds of a ponzi housing sector?”
        Slowly, with lots of outside help and money.

        Also, people talk about rebalancing in China to mean different things. To my understanding, Rebalancing in China is about moving away from fixed asset investment towards consumption spending. One of the main problems China is going to experience with this rebalancing is the Chinese consumer, they won’t want to or maybe can’t play their part. So the CCP and Chinese government will have to play it for them, hence the move towards consumption will involve a good deal of misallocation.

      • There is regrettably a very poor understanding generally of the characteristics of authoritarian / command economies.

        People do need to read Ludwig von Mises “Planned Chaos” …


        Planned Chaos: Ludwig Von Mises: 9780910614009: Amazon.com: Books


        … and coupled with this, the spontaneous order of markets is poorly understood as well. Check out the latest Texas 1st Quarter 2014 Housing Market report (h/t Catherine Cashmore) …


        Talk about re-learning the lessons of history the hard way. As Dr Thomas Sowell, the eminent Hoover Institution economist put it “We have spent the past few decades replacing what works with what feels good”.

      • notsofast,

        “..Slowly, with lots of outside help and money…”

        Who did you have in mind?

        How would those outsiders fix the problem. The problem doesn’t involve a shortage of Yuan – Beijing can print that. The problem seems to be a desperate need to fundamentally rebuild the business model of govt outside Beijing so that the local/provincial governments are not dependent on revenue from housing.

        But that means messing with taxation and expenditure and political control in a major way. All in a country with a murky history of public law and no rule of law.

        Any outsider with an ounce of sense would run a mile (and focus on minimising the damage of an implosion to themselves) even assuming that Beijing would ever ask for assistance and I find that extremely unlikely.

        I certainly hope they sort out the issue but it is a doozy.

      • notsofastMEMBER


        “Any outsider with an ounce of sense would run a mile”

        Not necessarily. I don’t think the people who run the world are prepared to let China fall in a heap and risk the elevation of a difficult and uncooperative leadership (even much more so than they face now). I think they are going to try and work with what they have.

        Contrast this with a Western Democracy, if they don’t like the leadership they just arrange to have the leadership changed.

  4. Further to evidence the contention that the “Christian” Church itself — via the bankster pope Leo X’s formal sanctioning of the Monti di pietà — is chiefly to blame for the rise of the internationalist money power through usurious lending; and, that Luther was on to it:

    “Everywhere in the world it has become the custom to lend for profit, and especially because scholars, priests, clergy, and churches do it…”

    — Martin Luther, Treatise On Usury, 1524 (2nd edition)

  5. “Sadly, we are stuck with credit. There appears to be no alternative method of recycling monies from surplus to deficit agents that will practically provide the necessary liquidity for the efficient operation of a modern free-market economy. For instance, if the government seeks to expand its redistributive function, through the expansion of tax, this is fiercely resisted. Yet, as El Diwany notes, the usurer extracts substantial tribute from the productive economy and this income-stream, in contrast to wealth held in other forms, is not subject to the universal principle of entropy (El Diwany, 2004). For rentiers this means that there is an increasing accumulation dynamic and through time, in conjunction with bank consolidation, this forms what Lenin had called a ‘financial oligarchy’ that wields an increasing amount of social power in world affairs (Lenin, 1916). Meanwhile, debt reaches epidemic proportions. Is there a way out? The proposals of binary economists and Islamists suggest there is…”

    — Simon Mouatt, Senior Lecturer in Economics: Southampton Business School
    On Usury: Theft or Reward for Factor of Production?, 2008

    Re usury / interest income being against nature — Contra Naturam — as not subject to the “universal principle of entropy” — cf. Silvio Gesell, The Natural Economic Order


    • Stephen Morris

      Trying to “pay off” government debt by selling assets to private monopolists and tax farmers is rather like trying to “pay off” one’s home loan by having it transferred from the bank to a bunch of loan sharks armed with cricket bats and rottweilers.

      The debt doesn’t simply “go away”. The obligation to pay doesn’t vanish into thin air.

      Private monopolists and tax farmers are not philanthropists. They are not giving the government money out of the kindness of their hearts. They are doing so in the expectation that they will be able to gouge it back in the form of monopoly pricing on their captive customers and from their farmed taxes.

      The deadweight losses associated with monopoly pricing and tax farming are no different from the deadweight losses imposed by taxation. And yet, whereas the wacko laissez-faire fundamentalists will condemn any form of transparent taxation, they will applaud such concealed “private taxation” by rent-extractors.

      Private monopolies are classically allocatively inefficient. It’s just that their inefficiency isn’t of the sort that shows up in any published profit and loss statement.

      When a [nameless] private airport monopoly, for example, needlessly delays – for years – the building of a second runway, the cost manifests itself “invisibly” in the form of lost time for travellers stuck in holding patterns, and in the form of extra fuel usage by airlines.

      For the wacko laissez-faire fundamentalists, however, this would be regarded as “efficient” because it raises the rate of return on the company’s restricted asset base.

      When a private road tolling tax farm runs at below capacity because the profit-maximising toll has encouraged drivers onto local streets, the cost manifests itself “invisibly” again in the form of lost time, in extra fuel usage, and in reduced amenity for those affected by the traffic.

      For the wacko laissez-faire fundamentalists, however, this would be regarded as “efficient” because it raises the company’s rate of return.

      When a privatised grain-handling authority closes regional depots and dynamites the silos (to prevent potential competitors offering to buy them), the cost manifests itself “invisibly” in the form of farmers having to build on-farm storage and transport their grain further by road.

      For the wacko laissez-faire fundamentalists, however, this would be regarded as “efficient” because it raises the company’s rate of return.

      But even more worrying is the direct line running from privatisation to corruption.

      Public agencies put work out to tender on a competitive, transparent, price-based system. In contrast, additional work by private monopolies and tax farms is almost invariably achieved through secretive, “commercial-in-confidence” renegotiations. Invariably the monopolist or tax farmer is in the commercially advantageous position of controlling the critical assets and revenues and thus being able to present a “take-it-or-leave-it” proposal.

      (We still don’t know exactly what concession were offered in order to get the announcement of a new runway shortly after the election. Tolls on drivers dropping off passengers perhaps??)

      As a matter of cosmetics for the gullible, there is usually an “independent adviser” involved, but having myself worked in this role I can testify that it is worse than useless.

      Imagine, if you will, a judicial system in which supposedly “independent” judges were selected by the Minister on a case by case basis from a pool of barristers. Imagine, if you will, that their deliberations were held in secret (“judicial-in-confidence”). Imagine, if you will, that those same barristers were themselves hoping to be involved in other commercial dealings with the government. And imagine that the Minister had made it clear that he wanted a particular verdict to be reached!

      If it weren’t so serious it would be laugh-out-loud funny.

      There is a direct line running from privatisation to corruption.

      But even beyond allocative inefficiency and corruption of the transparent and competitive tendering system, funding infrastructure through private monopolies and tax farms actually degrades public finances.

      One only need look at the history of public debt in the United Kingdom. (See (http://www.parliament.uk/briefing-papers/SN05745.pdf). Public sector net debt (excluding financial sector interventions) fell from 44% of GDP in 1980 to 26% in 1991 following the massive Thatcher privatisation program [much of which was actually “good” privatisation aimed at promoting competition . . . unlike today’s scams] but by 1997 it was back up to 42%. It is now above 70%.

      In the long run privatisation erodes government finances. While public revenues are being progressively alienated, politicians keep topping up the public debt (to buy votes), but have progressively less and less public revenue to service it.

      What we are actually seeing here is the collapse of the corrupt system of elective government.

      Politicians facing re-election want to spend money buying the votes of powerful minority voting blocs or marginal electorates. And they want to hide from the majority the cost of what they are doing. They try to achieve this by selling monopolies and tax farms.

      Privatisation of this type simply doesn’t address the underlying problem: desperate politicians wasting money trying to buy votes then trying to conceal what they have done.

      Politicians won’t stop spending. But the alienation of revenues though privatisation means that public finances deteriorate and politicians become ever more dependent on the rentiers and tax farmers.

      This is a throwback to the seventeenth century. It is a throwback to the Stuart kings trying to bypass parliament. It is a throwback to the ancien regime. It is a throwback to Colbert and the ferme generale.

      It is not just internally inefficient (involving layers and layers of facilitators and other “ticket-clippers”). It is also a system that imposes layers and layers of deadweight losses: over-pricing and under-investment, costs that are built into every transaction in the economy.

      Buy an imported car? It will have an invisible “private monopoly port tax” built into the price. Buy imported clothes? They will have an invisible “private monopoly airport tax” built into the price. Buy some groceries? They will have an invisible “private monopoly toll road tax” built into the price. And so it goes on . . . and on.

      Over the time the accumulated deadweight losses of this byzantine system can only grow.

      This is a slow-ticking time bomb. It is a system that will eventually collapse under the weight of its own accumulated inefficiency.

      But there is a reason that ancien regimes becomes “ancien”. The reason is that their members refuse to face up to what is going on around them. They keep pretending to themselves that they can go on squaring the circle.

      Until eventually they can’t.

      • Thanks Stephen great comment.

        I’m probably one of the privatization efficiency nuts, so in defense of my normal position I’d only add that the root cause of our efficiency problem lies in the modern economics definitions of efficiency not in the concept itself.

        Take the case of a manufacturer. Their systemic efficiency is measured in terms of total goods produced and total costs to run the company. There is no discount for needless tasks undertaken to appease unions, politicians or simply to be a good corporate citizen. So their productivity is as simple as goods / costs.

        If we expand this concept to the national economy, we see that productivity is simply : Total Exports / External costs.
        By including internal money flow and things like infrastructure development we pervert the simple definition of productivity (and thereby also pervert our definitions of efficiency)

        If we return to a simple productivity definition then most (if not all) the inefficiencies that you mention, are readily visible as inefficient because they all result in less goods produced or higher costs for the same total production.

    • + many – required reading by everyone now that ‘asset sales’ are once again being rolled out in the public debate as the unavoidable solution.

    • migtronixMEMBER

      So it’s our species fault that we can plainly see that higher salaries buy you less… Crazy, I know!

    • intertubernet

      “Mortgages have never been cheaper, which more than compensates for higher prices.”

      Truly this is investigative journalism to inspire a new generation.

      • Crack cocaine has never been cheaper in some parts of the US.

        That more than compensates for any “writhing death” eventuality.

  6. Positive news for Australian coal?


    China appears intent on continuing to ensure supply of key commodities. It is intriguing to note that April has seen a surge in imports of a range of raw materials into China, including crude, iron ore and copper. Stockpiles are substantial.

    Disputes in both the South China and East China Seas continue as China asserts territorial rights against a number of nations; Sino-Japanese tensions remain very real.

    Simultaneously Russia is flexing Putin Power thus far in Ukraine/Crimea with potential to expand thru neighbouring countries.

    Could this be the beginning of a new Cold War era – both Russia and China positioning themselves as key players in the global resource security, ultimately perhaps even challenging the US dominance in financial markets?

    • Now all we need to do is sell them the mines and the rail connections to the port and the process will be complete.

      Sorry, I forgot the 457 visas to bring in a ‘specialist’ off shore labour and management team who can dig the coal and wrap it just the way the off shore market likes.

      Sorry, I also forgot cutting the royalty rate following a concerted media campaign to explain that royalties are a great big tax on mining.

      Sorry, another thing, soft rules on transfer pricing to ensure that domestic extraction and export process remains barely profitable.

      Now the process is complete.

      Asking questions?

      That is xenophobia my friend – have another beer.

    • Could this be the beginning of a new Cold War era

      FFS 3d1kwipe, now you’re promoting war to boost the price of dirt?! Is there anything you won’t stoop to?

      • I was tempted to start down loading their reports on a regular basis to mess with their minds – or just help their self esteem.

      • intertubernet

        Mig, the person/organisation commissioning the report is listed in the report. You’d know that if you weren’t being ironic.

      • migtronixMEMBER

        @intertube You’d know that if you weren’t being ironic

        Or, you know, if I’d downloaded them 0.o

        @Pfh was tempted to start down loading their reports on a regular basis to mess with their minds

        I like it, pretty soon they’ll have alarm bells ringing and upper management screaming “we have to stop theoretically solving the worlds problems stat!”

    • notsofastMEMBER

      The World Bank is to Global Finance as the IEA is to Global Energy. Enough said.

  7. The Bureaucratic Cancer problem …

    Climate religeon… A Wicked Orthodoxy … Nigel Lawson … The Spectator


    … and …

    allAfrica.com: Africa: Urban Planners Skeptical of ‘Smart Cities’


    I tend to see these problems in the main as “Bureaucratic Cancer” … in their never ending quest for control … just whatever it takes.

    As societies become increasingly affluent, public bureaucracies capture an increasing flow of tax funds to engage in “sun rises in the west” quackery… in their never-ending quest for control.

    For example … much of the urban land use research financed by Government Agencies is rubbish … driven by the insatiable desire of ill-informed bureaucrats to control people.

    At their core, ignorant and cosseted bureaucrats distrust and detest people. There are too, many with an appropriate understanding of public service ethics. They must be supported and encouraged.

    This is why it is always important to starve them of funding and severely limit and prescribe their roles (simple tasks for simple people) … so they are left in no doubt they are there to serve the people.

    • Australian Federal Treasurer Joe Hockey is very much on a sound path …

      Axe to fall on public sector | | MacroBusiness


      Said Mr Hockey …

      “ ‘The only way to reduce the size of government is to have structural change,’ Mr Hockey said.”

      “ ‘And the only way to really have an impact on attitudes in the public sector is to get rid of programs.’”

      As another example of the “Bureaucratic Cancer” problem, the Christchurch earthquake severely stalled recovery will likely cost well in excess of $NZ40 billion when it should have been in the order of about $NZ15 billion … with much less heartache.

      Too many Christchurch citizens have been unnecessarily bureaucratically brutalized … further reading …



      • Hugh PavletichMEMBER

        In short … If governance and the law do not respect and mirror markets, they will fail.

        There is more than enough evidence of that !

    • Commenter “slightlyskeptical” nailed it:

      “A simple spread sheet and calculator should be sufficient to run global finance. Nothing is gained by making it complicated short of the profiteers trying to game it (I.E. Reggie and Ultracoin)…”

      • The world as it stands is already plagued with plenty of blood sucking fleas. Maybe Reggie is trying to break into it? I’m not in favour if that’s the deal, but I can’t say I blame him.

        Had I my time over, maybe I could rid myself of some conscience & humility & get productive on smoke & mirrors too – at least that seems to pay!

  8. Joe talking out both sides of his mouth again. So do we have a “budget emergency” or a “massive amount of money [to spend on roads]”? I’m pretty sure we can’t have both.


    “Over the next six years we are going to spend in excess of $40 billion on roads and that will be matched by the states and the private sector with an additional $42 billion,” Mr Hockey told Channel Nine this morning.

    “So it is a massive amount of money,” he said.

    • Never was a budget emergency, issues yes, emergency no. I’d like someone to ask Hockey directly to table the business case that determined the expenditure of $82 billion on roads is the most cost effective return on investment. There’s more to infrastructure than roads Hockey.

    • migtronixMEMBER

      Ha ha nice find Patrician. 7mil is a lot more than I made trading AUD but then I didn’t have ABS data ahead of time…