Monday's Top 10 with NZ Mint: Bretton Woods III; who's got the jobs; Ralph Norris; helicopter money; rural subsidies; fenceless farms; Jerry Seinfeld; Dilbert, and more

Here's my Top 10 links from around the Internet at 10:00 am today in association with NZ Mint.

Bernard is back tomorrow with his version.

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.

1. Bretton Woods III
Can a post-crisis global economy enjoy both growth and balance? To answer these questions, Sanjeev Sanyal, who is Deutsche Bank's global strategist, says it is important to understand the imbalances’ underlying dynamics.

An economy’s current account is the difference between its investment rate and its savings rate. He points out that in 2007, the United States had a savings rate of 14.6% of GDP, but an investment rate of 19.6%, generating a current-account deficit. By contrast, China had a fixed investment rate of 41.7% of GDP and a savings rate of 51.9%, reflected in a large surplus. As he explains at Project Syndicate:

In the last 60 years, the US has underpinned global growth by running persistent current-account deficits. Under the Bretton Woods system, the US ran deficits that enabled war-torn Europe and Japan to rebuild. In return, Europe funded the US deficits.

The system broke down when European countries, particularly France, decided to stop funding those deficits. But the economic model persisted, with Asian economies stepping in to finance the US deficits, while using the US market to grow rapidly. China is the latest and largest beneficiary of the economic model dubbed “Bretton Woods II.”

Clearly, periods of global growth are almost always characterized by symbiotic imbalances. But, while each of these episodes was characterized by macroeconomic distortions caused by the imbalances, they lasted for years, or even decades. So, the real question is what the next generation of symbiotic imbalances will look like.

It is likely that China will soon return to running very large current-account surpluses – potentially large enough to fund the US, with plenty left over for the rest of the world. As this capital cascades through the global financial system, it will re-inflate the economy.

In the “Bretton Woods III” system, China will transform from “factory to the world” to “investor to the world.” Like all unbalanced systems, it will have its distortions, but the arrangement could last for many years.

2. A gender-equal but weak jobs recovery
The Household Labour Force stats for 2012 Q4 brought some surprises, and a few economists frankly found them a bit dodgy. But they do allow us to see who are the winners and losers as the labour force starts growing again. Since the end of 2009, the New Zealand economy has added only 30,200 new jobs, barely 10,000 per year. But those 55 and over have grabbed 50,000 new jobs in that time, which means there are losers too.

But its not the 20-24 year olds nor the 25-34 year olds who have been the laggards as is usually assumed. It is the 35-44 year olds who have lost jobs - 27,700 less in those three years - and the 45-55 year olds have just managed to hold on to what they had.

In the US is is very noticeable that their recovery - which has added 5.3 million jobs over that same three year period - that 70% of them went to men; women's share of their jobs growth has gone backwards. However in New Zealand, apart from the 20-24 year age group, men and women have fared about the same.

3. Getting serious about helicopter money
Wednesday night last week may have marked the “emperor’s new clothes” moment of the Great Recession, in which the world suddenly realises its rulers are suffering from a delusion that doesn’t have to be humoured, according to Anatole Kaletsky. That delusion today is economic fatalism: the idea that nothing can be done to break the paralysis in the global economy and therefore that a “new normal” of mass unemployment and declining living standards is inevitable for years or decades to come.

Adair Turner, chairman of Britain’s Financial Services Authority and one of the most influential financial policymakers in the world argues that a virtually surefire method of stimulating economic activity exists today and that politicians and central bankers can no longer treat it as taboo: Newly created money should be handed out to the citizens or governments of countries that are mired in stagnation and such monetary financing of tax cuts or government spending should continue until economic activity revives.

A simple thought experiment shows why such “helicopter money” policies, which Turner calls overt monetary financing (OMF), would be far more effective than the conventional QE practiced by central banks today.

Despite its obvious effectiveness – or perhaps because of it – public discussion of helicopter money has been taboo among economic officials. The one exception was a speech by Ben Bernanke in 2002, before he became Fed chairman. This speech offered the most detailed and eloquent justification of monetary financing prior to Turner’s, and it earned Bernanke the Wall Street nickname “Helicopter Ben.” Since then, however, helicopter money has never been seriously mentioned by any senior official in any advanced economy.

Until this week. Ten years after the Helicopter Ben speech, Turner has broken the taboo about monetary financing. The effect on economic debate around the world could be irreversible and profound. Turner’s 40-page paper presents the arguments for the many variants of helicopter money with unprecedented academic sophistication, financial detail and historical context. Even more important, his paper systematically and rigorously rebuts all the standard objections to helicopter money.

4. Today's raw market data ...
A quick new week update:

5. Is Ralph Norris anti-debt?
New Zealand has produced few business managers more successful that Ralph Norris, ex supremo at Commonwealth Bank of Australia. Now that he's retired from that role he's a director of Fonterra and Origin Energy, sits on the University of Auckland council and mentors junior and senior executives. The 63-year-old’s focus is now on his tennis game, family and a luxury holiday home he’s building at Pasadena Bay on exclusive Waiheke Island, "where the rich go to play", or so says Anne Hyland who writes for the AFR.

Among other things, she asked him what he sees as the biggest issue in the short term for the Aussie banking sector:

“We will go through a period of lower growth. I don’t think it will go back to the norm of double-digit growth. It’ll be single digit. It shouldn’t come as a surprise. Credit growth in Australia had been very strong through the late 1990s and the first decade of the 2000s and you were always going to see housing markets take a breather. We’ve also had a situation where a lot of people have become debt adverse, and that’s not a bad thing.”

6. Subsidising agriculture, next phase
Those who pay call the tune. The EU is grappling with the costs of its subsidies to agriculture. It is searching for new justifications, according to Spiegel Online and the effort is being led by 'green' organisations:

"There are actually only two socially acceptable justifications for payments to farmers," says agricultural expert Lutz Ribbe of the European Nature Heritage Fund. One argument, he explains, is that the money can supplement the meager income of farmers, thereby preventing the farming lifestyle in Europe from going extinct. The other is that the farmers can provide vital aid to the environment in return for support from the taxpayer.

But poor income is hardly an issue anymore for farmers. Global market prices have almost doubled since 2005. According to calculations by the government-run Thünen Institute of Rural Studies, larger farms recently made an average annual profit of about €160,000, of which about 40 percent was financed with taxpayer money. Farmers are also increasingly profiting from the boom in alternative energy, as they rake in millions with biogas plants and wind turbines that they operate on the side.

This leaves the environmental services Ciolos is calling for. If they don't materialize, says agricultural expert Ribbe, "there will no longer be any justification for direct payments, and they'll have to be eliminated!" Environmental groups like Friends of the Earth Germany, as well as the Greens, tend to agree. Bärbel Höhn, deputy chair of the Green Party's parliamentary group, says: "It must be clear to farmers that social acceptance for direct payments hinges on 'greening.'"

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7. Out of Africa
Lenders overseas are turning to social media to assess borrowers and the trend started in the vibrant mobile phone networks in Africa. Will the trend come to New Zealand? Are lenders checking your Facebook for tell-tale signs of credit-worthiness and using this as part of their assessment? More from The Economist:

Perhaps no company has gone as far as Lenddo, a Hong Kong start-up that owns online lenders in Colombia and the Philippines. Loan-seekers ask Facebook friends to vouch for them. To determine if those who say “yes” are real friends rather than mere Facebook contacts, Lenddo’s software checks messages for shared slang or wording that suggests affinity. What’s more, the credit scores of those who have vouched for a borrower are damaged if he or she fails to repay. Put the word out about this “social-enforcement mechanism” and “boom, the money shows up,” says Jeff Stewart, Lenddo’s boss.

Big banks will tread carefully, nonetheless. Although they monitor social media for marketing, using the data to assess loan applicants is “a dangerous game” that big banks are ducking for now, says Frank Eliason, head of social media for Citibank. He notes that in the past six months some people have dropped Facebook for fee-based networks such as App.net that offer greater privacy. Schufa, a German credit bureau, abandoned plans to mine Facebook, Twitter and LinkedIn after a public backlash last year.

Employees at small banks often search social media or the web for the names of loan applicants, says Jack Vonder Heide of Technology Briefing Centers, a consultancy. A loan officer might deny a loan upon learning that, say, an applicant is getting divorced. But if that process was automated and industrialised, it could turn a big bank into “very juicy fodder” for the press. A bank might run afoul of privacy laws as a result, Mr Vonder Heide says. And it would certainly be vilified on the very social-media sites it was using to make decisions.

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8. The next big farming advance
It looks like the way grazing farms are managed is about to undergo a big change. Traditional fences may be on the way out and replaced by virtual fences. A relatively straightforward technological innovation - GPS-equipped pasture-farmed animals that can be nudged back within virtual bounds by ear-mounted stimulus-delivery devices - could profoundly reshape our relationships with domesticated animals, the landscape, and each other. Instead of investing in fencing and maintaining them, farmers will need to invest in new electronic capabilities. 

The one downside is that the technology advance is not being led from the world's champion grazing industry in New Zealand - or is it? If there is a local effort in this technology, we would love to know more. here is the long, detailed and fascinating review in The Atlantic:

My concept of virtual fencing was basically to have that perimeter fence around your property be conventional, whether it's barbed wire, stone, wood, or whatever. But, internally, you don't have fences. You basically program "electronic" polygons, if you will, based upon the current year's pattern of rainfall, pattern of poisonous weed growth, pattern of endangered species growth, and whatever other variables will affect your current year's management decisions. Then you can use the virtual polygon to either include or exclude animals from areas on the landscape that you want to manage with scalpel-like precision.

I always say that virtual fencing is going to be something that causes a paradigm shift in the way we think, rather than just being a new tool to keep doing things in the same old way. That's the real opportunity.

But it could cut two ways. Not only will farmers have much finer and more flexible control over where their animals roam, it may also give regulators and political parties the option to more finely prescribe how animals are managed - virtually requiring farmers to adopt the technology. 

9. Off topic ...
Gareth Morgan's anti-cat crusade has gone viral internationally. I'm a regular enjoyer of the New Zealand outdoors on trails in the city to multi-day tramps in the National Parks. Anything that can counter the carnage of our bird life has to be a good thing, so I am 100% behind Morgan. It just excellent to see the campaign get such interest. Spiegel Online has a useful summary of the damage cats do around the world.

In Great Britain, there are sometimes up to 1,000 cats per square kilometer in populated areas. Even in the Serengeti, a predator species could never reach such high population density, since wild predators have to live on what they kill. But not so with cats. They kill because they are driven by their hunting instinct, and to pass the time. But they take their regular meals at home. The British researchers note that the cat problem could be even more serious than it appears because cats can even cause death without actively killing. The mere fact that they are there is enough.

10. Today's quote
"Dogs have no money. Isn’t that amazing? They’re broke their entire lives. But they get through. You know why dogs have no money? .. No Pockets." – Jerry Seinfeld