Monday's Top 10: Who will run the deficits?; China?; computers and equality; prices; Xero vs property; Hans Riegel; Dilbert, and more

Here's my edition of Top 10 links from around the Internet at 10:00 am today. We now have a Monday-Wednesday-Friday schedule for Top 10.

Bernard will be back with his version this Wednesday. We will have another guest posting on Friday.

As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.

See all previous Top 10s here.

1. Who will run the world's deficits?
The global economy is a closed system.

For every surplus there has to be an equivalent deficit.

If the US Congress (and US public) don't wish to build up endless debt, and everyone else (except us?) want to run surpluses, how will the world trade system function?

This is a problem addressed by Sanjeev Sanyal, a Deutsche Bank strategist.

He has an interesting analysis:

The US is the main exception: it has both the required scale and the youngest population of any major developed country. Given this, it will once again fall to the US to run the world’s largest external deficit, in what could be dubbed Bretton Woods III.

It may seem appalling to expect such a highly indebted country to continue to run deficits; but the world is willing to finance the US at negative real interest rates. Indeed, the main international concern has been US policymakers’ reluctance to raise the government’s debt ceiling!

If the US is unable or unwilling to run the required deficits, the global economy will flounder in a savings glut of low demand and cheap capital until another alternative emerges. Or perhaps the low cost of international capital will entice the US to absorb some of the world’s excess savings, triggering a new period of global expansion.

2. If not the US, China perhaps?
Simon Johnson doesn't address the issue directly, but he does see the Chinese banking system primed for a similar set of failures that the US and Europe have had. More from Project Syndicate:

But the Chinese policy elite are also very taken with the idea that a first-rank country needs a prominent banking system that is active internationally. There is nothing wrong with this ambition, as long as it is handled with great caution. Unfortunately, it is now becoming clear that the hard lessons of recent financial crises have been lost on China.

Bankers never like tight regulation – and they particularly do not appreciate being required to fund their operations with more equity relative to debt. In both good times and bad, their refrain is, “We need lower capital requirements,” meaning they should be allowed to borrow more.

The Chinese authorities should take another look at their policies. China is like Cinderella – finally allowed to attend the ball and given a chance to become a prominent player. But midnight could come very quickly, and financial crises do not have fairytale endings.

3. Are computers making society more unequal?
Tyler Cowen, an economist at George Mason University, a widely read blogger, and author of two books: The Great Stagnation, and Average is Over.

He is interviewed in the New Yorker about how the nature of work itself is changing, largely because of the increasing power of intelligent machines. Here's a sample:

NEW YORKER: In “Average Is Over,” you argue that inequality will grow in the U.S. for the next several decades. Why?

COWEN: There are three main reasons inequality is here to stay, and will likely grow. The first is just measurement of worker value. We’re doing a lot to measure what workers are contributing to businesses, and, when you do that, very often you end up paying some people less and other people more.

The second is automation - especially in terms of smart software. Today’s workplaces are often more complicated than, say, a factory for General Motors was in 1962. They require higher skills. People who have those skills are very often doing extremely well, but a lot of people don’t have them, and that increases inequality.

And the third point is globalization. There’s a lot more unskilled labor in the world, and that creates downward pressure on unskilled labor in the United States.

On the global level, inequality is down dramatically - we shouldn’t forget that. But within each country, or almost every country, inequality is up.

4. The price network
As regular readers will know, we track New Zealand and Australian grocery prices weekly, targeting home brands and specials in a healthy eating list. It's a modest effort, designed to be "an early warning system" for actual consumer prices.

Just how modest our effort is is highlighted by some truly grand projects, tracking tens of thousands of prices in real time, world wide. Apparently this sort of market intelligence is valuable. It is all made possible by clever software, the Android operating system, hundreds of paid workers, and a relentless drive. The smart money will know where the shortages are as they happen.

Here's Derek Thompson at The Atlantic:

Soloff prizes faster data - imagine, for example, how strange it would be if the Dow only reported one number a month, and that's what we're getting for consumer prices - but faster data isn't what most excites him. With boots on the ground, he says, Premise can also build custom indices that reveal the vastly different lives of each country's citizens. Want to use prices to understand how the poor are getting by in Rio? How the rich are faring in Mumbai? What's really happening behind the bizarre official figures in China? Those are just different indices, built from different baskets, powered by different data. It’s only a matter of sending a new batch of photo assignments to 700 phones.

Even more, Premise’s photos create a portrait of local shopping culture that offers unique details for investors and policymakers. "If an analyst wants to track all of the Walmarts in Mexico City to gauge how busy or not busy they are, we can do that," Soloff said. "We can send 10-20 workers to take pictures at those Walmarts and tell: How many people are exiting and entering at 10am? How many of them are holding bags? How long are the check-out lines? How many people walked by the meat case? How many of them bought something at the meat case?"

Soloff's ambitions are broader than helping a handful of investment bankers get an edge on Mexico City retail. He sees his company as something like a blend of Google Street View and the Consumer Price Index: a window into the world's stores to help us learn about the experience of the people behind the prices.

In the thousands of photos uploaded to Premise each day, literally seeing where food is out of stock in, say, Chennai, India, or which Rio bodegas have lines stretching out the door, can help policymakers see the beginnings of food scarcity before violent riots hit the streets. "Look at corn riots in Mexico, the food strikes in Egypt, and Syria," he said. "Water and food scarcity has become a huge story.”

Premise's big-data experiment might not be possible without Android, the closest thing we've had to a universal OS.

5. Inequality growing
According to The Spirit Level, Japan is an icon of equality amongst the most equal developed nations. Still, few other countries really asprire to be like Japan, despite its wealth. And it doesn't look like that equality is being sustained. This latest stat caught our eye this past week (HT Gareth).

The share of Japanese households with no financial assets rose to a record as falling incomes forced people to dig into their savings, highlighting the potential for widening disparities under Abenomics.

The proportion reached 31 percent, according to a Bank of Japan survey released in Tokyo yesterday, up from 26 percent a year earlier and the highest since the poll began in 1963. The BOJ surveyed 8,000 households of two or more people aged 20 years or older from June 14 though July 23.

6. Polar power play
When you hear of the "Ross Sea" you probably think of the Ross Ice Shelf in the Antarctic, and our own Scott Base. The whole southern continent is goverened by an international Treaty. New Zealand has a proud record of working with science in the area.

Things are changing though. Claims are overlapping. Britain recently 'named' a huge area after their monarch, infuriating many South American countries because it included areas they have been working in for decades. South Korea is building a base on the Ross Ice Shelf; Italy has one there too. And now China is making a major push. In fact it has 'named' 350 places overlapping other's claims.

China is after the resources. Are we ready to defend our 'traditional' influence and claims? More from The Economist:

China is steadily implementing its considerable polar ambitions. Over the past two decades its yearly Antarctic spending has increased from $20m to $55m, some three times the country’s investment in the Arctic. There are many reasons to stake a claim, not least to bolster national pride and global geopolitical clout. The goal of the current five-year polar plan, according to Chen Lianzeng, the deputy head of China's Arctic and Antarctic administration, is to increase the country's status and influence, in order to protect its “polar rights”.

With some justification, Chinese scholars refer to the Antarctic Treaty as a “rich man’s club”, in which China has only second-class citizenship. Publicly, though, it buries its grumbles and complies with Antarctic protocol, employing its customary “do but don’t say” foreign policy. It seems to be in China's best interest to go along with the status quo. An inspection regime installed by the treaty is ineffectual, and in reality there is little check on individual states’ affairs. Many countries benefit from this non-accountability, even as it fuels mistrust about the security of orbiting satellites, intelligence gathering and the “dual use” of personnel for military purposes.

Antarctica is the last unexploited continent. To some, this warrants a raft of conservation measures. To others, it is all potential, waiting to be reaped. As with the Arctic, China is explicit about its resource-acquisition objectives. The Southern Ocean is full of fish. Recently, Ukrainian scientists found a 600 sq-km (230 square-mile) petroleum field. Antarctica also has deposits of coal and other valuable minerals, though the scale is unknown. The Protocol on Environmental Protection upholds a mining ban until 2048, when it is to be reviewed. Anne-Marie Brady, author of an upcoming book on China’s polar strategy, says that despite this protection and the fact that change has to be consensual, the eventual exploitation of Antarctic resources is inevitable.

7. Overshadowed, and in decline
For a long time, the Property sector on the NZX was the star performer, helping keep the overall NZX50 growing and which is approaching the 5,000 level. But not any more. It is Xero and those other spectacular tech stocks that are leaving 'property' in the dust.

8. Commiserations
Hans Riegel died on Tuesday at the age of 90. Don't know Hans? His heir has been commenting on this website for a few years now. A moments silence please. More from Spiegel Online.

9. The net tightens
The addition of one word in a legal filing has revealed that Golman Sachs is the latest to be drawn into the big international regulatory investigations of the FX markets. Dealbook noticed:

Goldman Sachs on Thursday became the latest big bank to acknowledge that it was the subject of a series of wide-ranging investigations into the potential manipulation of the $5-trillion-a-day foreign exchange market.

Authorities in Britain, the United States, Switzerland and Hong Kong have all begun investigations, and in recent weeks, a number of banks have acknowledged that they are subject to those inquiries.

In a regulatory filing on Thursday, Goldman added the words “currencies” to a series of regulatory investigations and reviews it is facing.

The firm declined to comment beyond its filing on Thursday.

So far, nine of the largest banks in currency trading have announced they are facing inquiries, including Deutsche Bank, Citigroup, Barclays and UBS.

10. Today's quote
"Intaxication: Euphoria at getting a refund from the IRS, which lasts until you realize it was your money to start with." - From a Washington Post word contest