Thursday's Top 10 with NZ Mint: Fed starts debating how to withdraw stimulus; Stanley Fischer to be next Fed Chair?; The disturbing rise and rise of the robots; Food critic on food stamps; Dilbert

Here's my Top 10 links from around the Internet at midday in association with NZ Mint.

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.

My must read today is #7 on the rise of the robots from Robert Skidelsky. It's thought provoking and has me thinking about Universal Basic Incomes. 

1. Time to withdraw? - The big question for the global economy over the next couple of years will be how central banks withdraw 6 years of economic stimulus without imploding the economy again.

The general answer seems to be: "Very carefully"

This morning the US Federal Reserve started murmuring, or at least debating quietly, the idea of slowing down or beginning to withdraw its current prescription of printing US$85 billion a month to buy bonds and promising near 0% interest rates for years, or at least until unemployment gets below 6.5%.

John Carney from CNBC parses the latest minutes from the US Federal Reserve.

The debate on how to remove the punch bowl (which is more of a swimming pool) from the party is definitely starting in America at least.

Moving a swimming pool from a party while it's going on is a risky business. Some very delicate use of a couple of forklifts and a lot of high viz clothing is required. The FT described the minutes as showing the Fed backing away from asset buying.

Here's Carney:

Fed officials announced on January 30th that they would continue to buy mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month, a policy popularly known as quantitative easing. The Fed hasn't said when these asset purchases will end. Instead, it has said that the purchases will continue if "the outlook for the labor market does not improve substantially."

A number of policymakers, however, said that the costs, and risks of quantitative easing might lead the Fed to taper or end its purchases before a substantial improvement in the outlook for the labor market had occurred.

The minutes, which describe the discussions of policymakers during the two-day January FOMC meeting, reveal that "most participants" believe the asset purchases have been effective at stimulating the economy and easing financial conditions. Nonetheless, concerns about quantitative easing appear to be mounting. According to the minutes, "many participants" in the meeting expressed concerns about "potential costs and risks arising from further asset purchases."

2. A food critic living on food stamps finally gets a job - Jim Romenesko writes on his blog about a US food critic who couldn't find a job writing restaurant reviews and ended up on food stamps along with 47 million other Americans.

Now Ed Murrieta  has just got a job writing restaurant reviews for the Sacramento Convention and Visitors Bureau.

This seems to be the future for media and journalism. News and reviews will be eventually be paid for through Public Relations and contra deals, rather than by the media publishing the articles. 

The most fun in this article is about how Ed made a few bucks doing PR for a medicinal cannabis doctor.

In spring 2011, I moved back to Sacramento to house-sit and continued working on a pot journalism project — PotAppetit.com, in which I applied a lifestyles reporting/writing approach to Sacramento’s medical cannabis businesses and culture. That led to freelance work writing for the Sacramento Bee’s medical cannabis advertising section. When the feds stepped up its pot pogrom, I saw the writing on the wall and snuffed the pot journalism project. In September 2012, I decided focus once again on food and restaurants.

What lifestyle changes did you make?

When I couldn’t make rent, I lived in my car. Eventually, I sold my car. Cable? Never had it when I had money. Cellphone? I don’t like them so not having one for the past three years has been no sacrifice. (I have one now, but mostly so my dad can call me.) I learned that Folger’s is damn fine coffee. I’ve eaten more lentils and cactus than anyone I know.

3. The problem with deflation - Japan is desperately trying to engineer some inflation at the moment. 

Its companies are not helping. They are planning more wage cuts, Reuters reports. 

Tight-fisted companies in Japan may prove the biggest obstacle in Prime Minister Shinzo Abe's plan to push the sluggish economy into higher gear as they intend to keep a firm lid on wage levels, a Reuters survey shows. Abe has directly appealed to Japan's biggest business lobbies to raise salaries and break more than two decades of falling average wage levels, aware of how critical rising incomes are if Japan is finally to emerge from years of deflation.

But the Reuters poll shows Japan Inc is reluctant to play along. About 85 percent of firms responding to a monthly Reuters Corporate Survey said they would maintain wage levels or cut them in the fiscal year starting in April.

Abe's gambit is that once a deflationary cycle of price declines that depress sales, business investment and incomes is broken, a virtuous cycle will kick in: investment will rise, leading to more, better paid jobs and greater demand. Without wage rises, Japan could be left with "bad" inflation, where a weak yen pushes up import prices as household earnings stagnate. That would hurt, rather than boost, demand and growth.

4. Japan's looming singularity - Claus Vistesen and Edward Hugh from Economonitor think thoughtfully aloud about Japan's strange situation where it has a monstrously large debt but ever-falling interest rates.  

Everyone puzzles about why Japan hasn't imploded yet. 

If You Print Your Own Money, And You Run An External Surplus, How Can There Be a Problem?

Japan’s problem is benign, so the argument goes, since the country has an external surplus, and can print its own money. As a result there is a savings surplus, and no problem selling government debt, even at ridiculously low interest rates. And since the interest paid remains ridiculously low, then there is no problem servicing the debt, and if there ever was, why then the Bank of Japan could just buy even more of its own government bonds, effectively driving the interest rate even lower.

In theory there is no good reason why it couldn’t even follow the lead being currently set in Germany, and push the rate into negative territory. Heck, the government would then be even earning income on its debt. It would be a good investment. But somehow or other this view fails to convince. In particular it fails to get to grips with why Japan has gotten into this situation. It also doesn’t offer any kind of road-map for how the country could ever get back to the sort of monetary regime that was once widely considered to be “normal”. Or perhaps, in the world we now live in, as the US novelist Thomas Wolf once put it “you can look homeward angel” but in fact “you can never go home again”. Which is just a very poetic way of saying that time has an arrow, and that some processes are irrevocable and irreversible.

Hugh and Visteon finish with this prophetic musing. It reinforces to me the power of demographics.

Will the Japanese Gerard Depardieus and those leading global companies with large foreign assets still be happy to pay the surcharge needed for elderly care of all those elderly people that lost their savings because they trusted the government?

Or Japanese young people, will they still be prepared to stay and work in a country which may well have some of the highest income tax rates on the planet?

No matter how Japan will act in its battle to survive the endgame, it is going to provide us with a fascinating experiment to follow because whether it succeeds or not will tell us a lot about our own future, and of how the rest of the OECD will cope with the rapidly ageing societies they have in their own back yards.

5. Maybe the future is cooperatives - The biggest and fastest growing companies with true scale in New Zealand have been supplier and buyer owned cooperatives, including Fonterra, Foodstuffs and Mitre 10. 

Mitre 10's CEO is resigning after 3 years, but what struck me was how big and fast-growing it has been. They seem to work for the owners of stores and farms. I'm not sure about for consumers, but hey, at least they are New Zealand owned and are recirculating the profits.

6. Could the outgoing Bank of Israel boss become the new US Federal Reserve Chairman? - Dylan Matthews at Washington Post's Wonkblog wonders whether former Bank of Israel Governor Stanley Fischer could replace Ben Bernanke.

Fischer has just imposed the sort of macroprudential controls (LVR ratios) that our Reserve Bank is looking at using and ensured a devaluation to cushion the blow of the GFC on Israel's economy. Interestingly, Fischer, was born into a Jewish family and raised in what was Rhodesia.

He is an American citizen and former head of MIT's economics department and a former chief economist of the World Bank. His accent is the most Trans Atlantic I've heard in a while. At points he sounds Australian, then American, then South African and then British. The video below from late January is worth watching.

It's a nice profile piece that's well worth a read.

Being governor of a small country’s central bank during a worldwide financial crisis isn’t anyone’s idea of a fun job. Israel, like many other nations, was hit with the consequences of screw-ups made on Wall Street and in Washington. U.S. policymakers could have, in theory, prevented the crisis; at his post in Israel, Fischer had no such ability. But Fischer had a weapon of his own: the shekel. Central banks generally have a lot of control over how much their countries’ currencies are worth relative to others. And reducing a currency’s value increases a country’s exports, which can often lead to economic growth.

Big central banks tend to be cautious about using that lever. If Bernanke halved the value of the dollar relative to, say, the Chinese yuan, that would dramatically increase U.S. exports and probably economic growth, too, but it would also wreak havoc with the global financial system. Every dollar-denominated asset in the world, including all manner of bonds, would plummet in value.

It’s less risky for small countries. There aren’t massive piles of shekels lying around in other countries the way there are with dollars and euros, and Fischer took advantage of that fact. On May 30, 2008, a dollar was worth about 3.2 shekels. On March 6, 2009, it was worth 4.2 shekels. In less than a year, Fischer had reduced the value of the shekel by about 25 percent — a massive devaluation.

It worked. Exports soared, and 2008’s trade deficit of $2 billion became 2009’s trade surplus of $5 billion. While other countries fell deeper into recession, Israel brushed its shoulders off.

7. The rise of the robots - Robert Skidelsky writes an excellent piece at Project Syndicate on the implication that there'll be no one with work and incomes to buy stuff made by all the robots being used to replace workers. He suggests work sharing. 

For those who dread the threat that automation poses to low-skilled labor, a ready answer is to train people for better jobs. But technological progress is now eating up the better jobs, too. A wide range of jobs that we now think of as skilled, secure, and irreduciblyhuman may be the next casualties of technological change.

As a recent article in the Financial Times points out, in two areas notoriously immune to productivity increases, education and health care, technology is already reducing the demand for skilled labor. Translation, data analysis, legal research – a whole range of high-skilled jobs may wither away. So, what will the new generation of workers be trained for?

Optimists airily assert that “many new types of job will be created.” They ask us to think of the lead drivers of multi-car road trains (once our electric cars join up “convoy-style”), big data analysts, or robot mechanics. That does not sound like too many new jobs to me.

8. Still a world beater - At tax avoidance. That's the Guardian's description of what Britain is excellent at these days.

The Commons public accounts committee is not happy about the £5bn the tax avoidance industry is costing the exchequer each year and the backbench MPs appear to have the backing of the prime minister and chancellor, both of whom have promised action in recent days.

So what could be done? One suggestion by MPs on the committee is that tax avoiders should be "named and shamed". That has a nice populist ring to it, and might deter the likes of comedian Jimmy Carr from exploiting loopholes, but would probably be far less effective in changing the behaviour of the big multinational corporations.

Another idea – that the tax planning industry should get clearance for any new scheme in advance, as is the case in Australia – has more substance to it.

9. China's fascinating lust for raw materials - China is now the biggest lender to and propper upper of tinpot dictatorships as it tries to buy access to scarce raw materials. I suppose it's less dangerous than the Japanese approach of the 1930s, which was to invade the nation to get the raw materials...

Here's the Telegraph on China's Concrete Diplomacy.

Chinese investments arrived just when the West was attempting to isolate Sudan, strangling the economy by withdrawing investment, as it did with apartheid-era South Africa. For Beijing, which became a net importer of crude oil in 1993, Sudan represented an ideal opportunity to boost its energy security: CNPC, Sinopec and other Chinese oil companies obtained shares in about 40 per cent of the country's oil assets, despite their obsolete technology and limited experience in the international crude oil industry.

According to Ali Mohammed, China was 'the only choice for Sudan. Western companies didn't want to co-operate with us.' By 2010 China was the biggest buyer of Sudanese oil, purchasing 12.59 million tons of crude (about half the country's total output for the year), 5.3 per cent of China's total oil imports.

10. Totally Jon Stewart on the British horsemeat scandal...

... and the Russian meteor: 'How I meteored your Motherland'. Who knew the Russians love their dashboard cams so much. Made me laugh a lot.

(Updated with fresh Dilbert and new cartoons)