Daily News Roundup 2012: Tuesday 8 May

Good morning

The headlines:

1. Consumer credit in the US is growing. Consumer credit "surged" in March: its largest monthly movement in a decade. The increase came mostly from new car and student loans (but the indicator released by the Fed doesn't track home mortgages - so where else is the increase going to come from?). Some analysts ascribe the increase to good Spring weather. Some think that the student loan surge is ahead of an expected rates increase in July. Some say that the increase is due to poor job markets sending people back to school. Obama is trying to persuade Congress to freeze the interest rate on student loans - because Middle-Class Americans should get to go to college. To me, it sounds like fudging the issue. If the educated are returning to education for the lack of anything better to do, then subsidized student loans are just social welfare spend. Some would argue that education is productive spend. I would argue that Doctorates in Interpretive Dance and/or Renaissance French Literature are not. What are they studying? Link: Spend spend spend.
2. Hollande (France) vows to choose growth over austerity. This guy is a clown: I'm all for alternatives to austerity; but I think that in Europe's case, they've forgotten the ravages of hyperinflation in the 1940s. Monetary stimulus is not the answer - it continues the illusion that people can indefinitely spend more than they can ever realistically pay back. The real hope for the Eurozone is that the Socialists will lose the parliamentary elections (in five weeks time), and Hollande will then have an opposition cabinet to deal with. One determined to make him lose face. In fact, that's not only the answer, it's a better solution to Sarkozy in power: a pro-austerity cabinet with a Socialist President to be the fall guy. It's the Capitalist sex dream (just without Carla Bruni). Link: The French Jester. 
3. Chancellor Merkel rejects stimulus as the plan for growth. The Germans have not forgotten the hyperinflation of the 1940s. Nor, I'm sure, the one from the 1920s. She's prepared to talk about "business-friendly changes" - like, what, lower licence fees? Not sure what those are - but her point is a favourite. "Growth is important, that's not the issue: the question is whether we want growth driven by debt-finances programs or sustainable growth elements oriented toward a country's strengths". Dear Angela: you sound Austrian. The Austrian Economic School will sing your praises even if you fail. Link: Germany unimpressed by Hollande (France). 
4. Christine Lagarde advocates a middle ground. There's always someone advocating the middle ground. But her middle ground sounds a lot like Angela's position. I enjoyed her euphemistic description of austerity as "fiscal adjustment". Because that's what it is: adjusting fiscal policy into something sustainable, rather than adjusting fiscal policy for voters into something that resembles the original problem-causing pattern. Link: Yes, mom. 
5. Samaras fails to form Greek Government. No one is surprised. The mandate now goes to Syriza, the radical left coalition that came second, to try form a government. When they fail, it will go back to Pasok. And when they fail, the country will go back to the polls. Link: More Greek elections to follow?
6. Google found guilty of infringing Oracle's Java copyright. There are nine lines of code out of 15 million that have been identified as the issue (by the jury). The rest are now excluded. The question facing the courts now is whether this was "fair use" by Google, if the use has caused a meaningful loss to Oracle, and to what extent. Oracle sought $1billion in damages. The 9 lines out of the 15 million disputed makes for $150 000 (apparently). Not the hoped-for payoff then... Link: My phone for 9 lines of code.
7. Liquidator adds Madoff's sons' wives to lawsuit list. Link: Challenging the traditional sanctity of marriage. 
8. Nobel Prizewinner says that South Africa should manage its Exchange Rate. Joseph Stiglitz suggests that the problem that South Africa faces is unemployment, and that this is exacerbated by appreciation of the rand. Therefore, be China about it. However, historical attempts to manage the exchange rate and target inflation by managing interest rates have proven somewhat flawed. I am cast back into first year macroeconomics where exchange rates, interest rates and inflation rates were the unholy triumvirate where you can control one or two concurrently, but to handle three is courting disaster. Why? Because there is speculator capital out there - and it likes arbitrage created by mismatches between the three. Link: This debate feels like an old one.

That's all for now.

Have a good day.

Daily News Roundup 2012: Tuesday 20 March

Good morning

The headlines:

1. Today is the day after March 19th: the ISDA of March (four days after the ides of March - historians, take note). The credit-default swap option auction took place. Dealers agreed to a final value for Greek Bonds of 21.5% of face value at auction. This means that the CDS sellers will have to pay out 78.5% of face value. And Bloomberg is still calling it a $2.5 billion loss (albeit with slightly more covering-of-respective-asses with the data source referencing). Whatever. That amount is yet to be quantified - which it will be, by the quarterly announcements of bank earnings. But on a slightly more positive note, the administrators of the auction indicated that the 21.5% face value was in line with the market values that the bonds were trading at before they went into default. These bonds have just been swapped for bonds worth 31.5% of face-value. That sounds like almost a 50% return. Cheers to the risk-takers: return on investment AND a swap settlement? Someone is back to getting his bonus. Like a boss. Link: CDS Auction and the dodgy math.
2. Ben Bernanke is returning to his Academic Roots to justify the existence of the Fed. For those who haven't been paying too much attention to the Republican nomination process (which has been a lot of tedious name-calling and many "victory upsets", as the journalistic catch-phrase goes), Ron Paul (one of the lesser candidates) has been advocating the abolishment of the Fed. The argument is quite interesting - and is the epitome of the Austrian Economic viewpoint (as opposed to, say, the Keynesian Economic Viewpoint) on Monetary Policy. The argument is basically that the free market can handle itself, and Central Banks cock it up. Fiat money (or paper/electronic money unbacked by gold) is the great evil. And if the Central Bank were not there, the market would naturally gravitate toward a self-imposed Gold Standard (I think it would - if everyone had the right to print money, then we would quickly begin to accept only the forms of money that are most reliable, which would likely be those forms that are backed by professional reputation and some form of real asset). The counter-argument is that the Central Bank has an established professional reputation (albeit "by law"), and let's ignore the part about real assets. I'm trying not to live on the fringe of economic thought. But I quite like the Austrians. Link: Bernanke's Publicity Drive.
3. Australia has passed Julia Gillard's Mineral Resources Rent Tax, which is basically a 30% tax on Iron ore and Coal Mining. The proposal will allow the current government to lower the general corporate tax rate from 30% to 29%. My question was: if the corporate tax rate was already at 30%, how is this affecting anything? My google/wikipedia search was fruitless. And then someone pointed out to me that the tax is over and above corporate tax. That is: the government calculates an reasonable profit that a normal company would make (a normal profit); and then considers anything above that "supernormal" profit. It's those profits (which are already after tax), which are then re-taxed under the new proposal. Link: Australia's Controversial Mining Tax.
4. And the African Business News in brief. Link: ABN Briefs. The highlights:
• Several East African countries are reportedly sitting on large supplies of sugar after over-importing last year. They are now looking to move it.
• Libya's LAP Green Networks is suing the Zambian Government for seizing its 75% stake in the country's only fixed line operator. The sale took place under the previous government. When the current government took power, the sale was ruled illegal and the shares confiscated. Not sure where the money went though.
• Zimbabwe has ordered foreign mining firms to deposit their export proceeds in local Zimbabwean banks. Sigh. It's all so distressingly familiar.

And that's all for now.

Have a great Tuesday!