Smart Picks -- Money Under the Mattress, Bankrupt Us!, What About Justice, Chinese Tremors, Bubble Hunter, UK Coalition
When everything is fine human beings tend to bring their future spending into the present. Longer vacations at a better hotel, bigger houses with new furniture, an appetizer and a dessert at the restaurant. When things aren't fine human beings tend to restrict their spending. Staycations, downsizing, dinner in, rented DVDs and not the theatre. Also innovations in financial technology, in the 1920s banks that lent to finance personal consumption, in the last 15 years financial institutions that used derivative technologies to package any kind of loan so the underlying capital could be shoved back into the economy, tend to elevate spending.
This is the way I understand what economists call 'the velocity of money'. John Mauldin provides a great summary of the velocity of money, why it is slowing, and why this is bad for the economy.
Jeffrey Simpson on how health care spending is crowding out other critical investments for an excellent future mostly because the conversation has become more ideological than rational. The Rahim Jaffer guilty plea tells everything about how the justice system works and nothing about political influence. The case from the UK for putting guilty people in prison longer for first offences -- tough love.
Three articles on China, the usual suspects, the property bubble, the under valued currency, and regional aspirations. Finally, a professional financial asset bubble hunter, and coalition politics UK style.
John Mauldin on the velocity of money.
This week we do some review on a very important topic, the velocity of money. If we don’t understand the basics, it is hard to make sense of the hash that our world economy is in, much less understand where we are headed. http://www.ritholtz.com/blog/2010/03/the-implications-of-velocity/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29
You will notice from the chart below that slowing velocity (think of it as money under the mattress) means slower economic growth.
Oh and debt levels matter too.
Jeffrey Simpson has been sounding the warning bell on how health care costs are crowding out other spending. Canada's excellent future will require a solution to the voracious appetite of spending on health care. Given that every other developed country in the world faces exactly the same problem the next step is to import best in class practices. How about, a greater emphasis on prevention, health care accounts so citizens can ration their own spending, and moving away from personal doctors to clinics.
The recent B.C. budget got it wrong. “If government health spending continues to grow at the current pace,” it said, “it will increasingly crowd out spending in other areas.” In fact, the crowding has been happening, is happening and will happen. It's the same cost pressure within every provincial budget, as citizens will again see as those budgets roll out in the weeks ahead. http://www.theglobeandmail.com/news/opinions/why-its-easier-to-avoid-a-shock-to-health-care/article1499177/
The chance to score political points was too great to miss when the news came out that Rahim Jaffer had made a deal. More's the pity. The real news is that the deal he struck was normal, the way things are done.
Is there a double standard at work in the story of Rahim Jaffer, the former Conservative MP who this week saw two serious criminal charges dropped against him as he pleaded guilty instead to a lesser one of careless driving? http://www.theglobeandmail.com/news/politics/jaffer-being-painted-as-guilty-shows-the-real-double-standard/article1499620/
The case made in respect to the UK that the best form of punishment to deter crime is to impose harsh sentences for first offenders. I would include once a year visits to prisons for students in grade 9.
Another week, another horror story. http://www.timesonline.co.uk/tol/comment/columnists/dominic_lawson/article7060983.ece
More on the Chinese property bubble.
As he threads his taxicab every day through the epic traffic jams in and around Shanghai, jabbering on his cell phone and muttering under his breath, Yang Jinyu seems an unlikely real estate mogul. http://www.time.com/time/magazine/article/0,9171,1971284,00.html
Chinese leaders defend their currency policy. As we have noted before they are frightened by the example of what happened to the Japanese economy when the Ministry of Finance allowed the Great Leap Forward in the value of the yen.
Premier Wen Jiabao sharply defended China’s currency and trade policies on Sunday against what he called foreign “finger-pointing,” charging instead that the developed world seeks to force unfair changes in those policies “just for the purposes of increasing their own exports.” http://www.nytimes.com/2010/03/15/world/asia/15china.html?ref=global-home
Potential Chinese territorial mischief.
A big question for some of China's neighbors, including Japan, India and Southeast Asia, is if and when Beijing will extend its list of core sovereignty interests to include claims to land territory that India says belongs to it, and to sea and island territory that Japan and some Southeast Asian countries say belongs to them.
This is a major issue and the scale of the claims can be exacerbated by emotive nationalism. China's claims are linked to the maintenance or recovery of territory it says was taken by colonial powers when it was weak. http://search.japantimes.co.jp/cgi-bin/eo20100314mr.html
Coming soon to a theatre near you, Financial Bubble Hunter.
Didier Sornette has immersed his life in risk. He rides motorcycles, windsurfs and water skis long stretches of a 120-mile route between Nice and Corsica. Now comes a daunting professional challenge: "The Financial Bubble Experiment." http://online.wsj.com/article/SB20001424052748703447104575118070057646044.html
Coalition politics, UK-style.
We are now stuck with the phrase "hung parliament". Everyone knows what is meant by it, though in our politics it goes back only to 1974. The phenomenon itself goes back for centuries. All it means is that no party holds an absolute majority in the legislature. http://www.independent.co.uk/opinion/commentators/alan-watkins/alan-watkins-a-hung-parliament-is-a-red-herring-1921039.html
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