Here’s my Top 10 items from around the Internet over the last week or so. As always, we welcome your additions in the comments below or via email to firstname.lastname@example.org.
My must read is #7 on the lifestyles of the ‘Fuerdai’ of Vancouver. Read the whole thing.
1. The real forces behind China’s capital flight – Keith Bradsher has a good look here at why people in China are trying to get their money out and why it will be difficult for Chinese authorities to either block them, or just run down its reserves instead of devaluing the renminbi.
There are some fairly deep political and emotional reasons for the capital flight. It’s always, always about trust.
And it’s also about expectations of future movements in currencies.
Individuals can move $50,000 a year across China’s borders. Companies and sophisticated investors have more freedom to send out money legally for big-ticket purchases and investments. Overseas and domestic companies, which maintain bank accounts in various currencies, can also shift their cash, as well as borrow based on which currency they think will fall in value.
But unofficial methods abound.
Companies have filed misleading invoices to keep more profits outside the country, although Chinese authorities have cracked down on the practice.
Mr. Rein described doing market research with a wealthy woman in Shanghai who changed $7 million this winter from renminbi into dollars, by using 140 relatives, friends and even friends’ relatives who each carried $50,000 apiece.
2. The invoicing route – Bradsher refers above to the old technique of over-invoicing for imports. The importer buys from a friendly Hong Kong exporter and over-pays for the goods. The difference between the real cost and the invoiced cost is then banked and helps move capital out of China.
The trouble is both China and Hong measure their imports and exports, respectively. The numbers should match, but of course they don’t. The chart tells the story. Watch the gap. As does the FT here.
3. The War on Cash – Paul Mason has a useful piece here at the Guardian summarising the global push to get rid of cash, driven in part by the rush towards negative interest rates.
Consider the central banks’ anti-crisis measures so far. The first was to slash interest rates close to zero. Then, since you can’t slash them below zero, the banks turned to printing money to stimulate demand. But with global growth depressed, and a massive overhanging debt, quantitative easing (QE) is running out of steam.
Enter the era of negative interest rates: thanks to the effect of QE, tens of billions held in government bonds already yield interest rates that are effectively below zero. Now, central banks such as Japan and Sweden have begun to imposenegative official interest rates.
The effect, for banks or long-term savers, is that by putting your money in a safe place – such as the central bank or a government bond – you automatically lose some of it.
Not surprisingly, these measures have led to the growing popularity of cash for people with any substantial savings. Bank of England research shows demand for cash has grown faster than GDP in many countries. So the central banks face a further challenge: how to impose negative interest rates on cash itself.
Technologically, you can’t. If people hold their savings as physical currency, it keeps its value – and in a period of deflation the spending power of hoarded cash increases, even as share prices and the value of bank deposits fall. Cash, in a situation like this, is king.
4. Just cancel the notes? – Mason points to one novel suggestion from the ever surprising Andy Haldane (the chief economist of the Bank of England). Just cancel random bank notes. That would get people’s attention.
Last September, the Bank of England’s chief economist, Andy Haldane, openly pondered ways of imposing negative interest rates on cash – ie shrinking its value automatically. You could invalidate random banknotes, using their serial numbers. There are £63bn worth of notes in circulation in the UK: if you wanted to lop 1% off that, you could simply cancel half of all fivers without warning. A second solution would be to establish an exchange rate between paper money and the digital money in our bank accounts. A fiver deposited at the bank might buy you a £4.95 credit in your account.
More radical still would be to outlaw cash. In Norway, two major banks no longer issue cash from branch offices. Last month, the biggest bank, DNB, publicly called for the government to outlaw cash.
Why would a central bank want to eliminate cash? For the same reason as you want to flatten interest rates to zero: to force people to spend or invest their money in the risky activities that revive growth, rather than hoarding it in the safest place.
5. The amazing Chuck Blazer – This is probably a first for my Top 10 — a link to an ESPN article. But it’s a cracker on how the FBI unravelled the bribery and corruption within FIFA. It’s just a cracking story and shows yet again that all you need to do is follow the money. The FBI’s experience in prosecuting the mafia and Russian mobsters helped. The detail about how they turned Chuck Blazer into an informant is fascinating. Blazer had big, swanky office in Trump Tower.
As these things often do, the case turned on the two conspirators — Chuck Blazer and Jack Warner — falling out with each other.
The road to bin Hammam’s election ran through the Caribbean, where Jack Warner controlled 31 delegates, or 15 percent of the total FIFA votes. Three weeks before the election, Warner invited bin Hammam to a luncheon in Trinidad to address leaders from the Caribbean Football Union. When the talk finished, Warner directed delegates to a nearby room. There they each found a brown envelope containing $40,000 in cash, which investigators would later claim bin Hammam had brought on his private plane, part of the billionaire’s slush fund to buy votes.
Blazer was in Miami on CONCACAF business when he learned that day of the apparently brazen bribery occurring in Trinidad. He hit the roof. Blazer’s partnership with Warner had strained. Warner, who started his days at 5 a.m., despised the way Blazer sauntered into the office at noon after being out until the early morning at strip clubs. Blazer, in turn, resented the way Warner spent all his time playing politics in Trinidad.
6. It’s always, always bad when tax havens are involved – If you ever have your doubts about the bona fides of anyone and you find out they’re operating in and around tax havens like Panama and the Cayman Islands, then run a mile.
Here’s how the FBI really nailed Blazer and the whole FIFA complex.
Berryman discovered a $200,000 wire, dated March 1999, from an account held by a Uruguayan shell company to a Barclays Bank account that Blazer controlled in the Cayman Islands. Another wire to Blazer, this one for $600,000, originated from an account controlled by a Panamanian group. Berryman also discovered that Blazer had skimmed millions that FIFA had earmarked for other purposes. As Berryman tracked additional wires and deposits — many of which would later be revealed as bribes for World Cup votes or kickbacks for Gold Cup marketing and TV rights — he began to fill out the mosaic of Blazer’s activities.
And if you’re a baddie, at least go to the trouble of paying your taxes.
Randall and Berryman hadn’t made an appointment. They didn’t want one. They quickly proceeded to have what an FBI source described as a “come to Jesus talk” with Blazer. They laid out what they had discovered: the shell companies, Blazer’s failure to pay taxes. According to one of the sources close to the case, Blazer folded immediately. In the days following, prosecutors from the Eastern District drew up a cooperation deal that stipulated his role as an informant, and Blazer readily signed it.
7. The Golden Generation – The New Yorker has a long and detailed piece on the lives and styles of the ‘Fuerdai’ of Vancouver. These are residents of Vancouver who have parents and family left living in China.
The details are eye opening. And the comments from Chinese-Canadians are just as interesting.
The Chinese presence in Vancouver is particularly pronounced, thanks to the city’s position on the Pacific Rim, its pleasant climate, and its easy pace of life. China’s newly minted millionaires see the city as a haven in which to place not only their money but, increasingly, their offspring, who come there to get an education, to start businesses, and to socialize. The children of wealthy Chinese are known as fuerdai, which means “rich second generation.”
In a culture where poverty and thrift were long the norm, their extravagances have become notorious.
Last year, the son of China’s richest man posted pictures online of his dog wearing two gold-plated Apple Watches, one on each front paw. On Web forums, citizens complain that fuerdai are “flaunting what they haven’t earned” and that “their grotesque displays are a poison to the work ethic of Chinese society.”
8. Consumption or production – Some of the themes resonate for Auckland, of course. These comments from Bing Thom, a Canadian architect whose family came from Hong Kong before the latest influx, are instructive:
I asked Bing Thom about the changes. The property boom has, of course, been good for the architectural profession, but Thom, who is now in his early seventies, is troubled by what is happening to his home town. “By all accounts, I have done pretty well in my business, but I made more money from sitting on my Vancouver property than I made by working an entire lifetime,” he said. “That tells you something.”
Thom was alarmed that consumption has effectively replaced production as Vancouver’s growth industry. “The city has become a hotel,” he said. He was opposed to what he called “selling citizenships”—the practice whereby countries including Canada and the U.S. grant residency in exchange for investment. “I think any country should be against that, because you’re not buying the best people,” Thom said. “They don’t invest in their country. There’s no belonging. But it’s a worldwide trend. It’s happening in England. It’s happening in France. It’s happening in Australia. Everywhere.”
9. The Cheese Police find wood pulp – This is a fun piece from Bloomberg on the problem with some types of Parmesan. Some don’t have any cheese in them. Food security and provenance are among the big issues of our age.
“The tipping point was grated cheese, where less than 40 percent of the product was actually a cheese product,” Schuman said. “Consumers are innocent, and they’re not getting what they bargained for. And that’s just wrong.”
How serious is the problem? Bloomberg News had store-bought grated cheese tested for wood-pulp content by an independent laboratory.
Cellulose is a safe additive, and an acceptable level is 2 percent to 4 percent, according to Dean Sommer, a cheese technologist at the Center for Dairy Research in Madison, Wisconsin. Essential Everyday 100% Grated Parmesan Cheese, from Jewel-Osco, was 8.8 percent cellulose, while Wal-Mart Stores Inc.’s Great Value 100% Grated Parmesan Cheese registered 7.8 percent, according to test results. Whole Foods 365 brand didn’t list cellulose as an ingredient on the label, but still tested at 0.3 percent. Kraft had 3.8 percent.
10. Totally Last Week Tonight – I couldn’t resist sending you to the full four minutes and 35 seconds of glory from John Oliver, which pays…er….tribute to Steven Joyce.