Top 10 at 10: Growing wage inequality; US$ reserve currency status SAFE for now; Euro pension delay; Dilbert

Here are my Top 10 links from around the Internet at 10 past 1 pm. I welcome your additions and comments below or please send suggestions for Friday's Top 10 at 10 via email to bernard.hickey@interest.co.nz

1. For all the 'ists' out there - This chart courtesy of Catherine Rampell's blog at the NYTimes shows how educated workers and women in particular have done much better in income terms than less educated men in recent years in the US. I'm sympathetic to those who worry about growing income inequality and the way the elites have enriched themselves at the expense of the masses over the last two decades. They've partly done this by ensuring the masses borrowed lots to disguise the fact their real incomes had dropped. It's all coming home to roost now. Pitchforks anyone?

2. Useful interactive graphic - The Economist has compiled a useful graphic on European debt and growth. Click on the chart below to see the real thing.

EUROPE is damned if it does and damned if it doesn't, fiscally speaking. Fears that Greece's debt crisis presage similar episodes elsewhere in the euro zone—notably in Portugal and Spain—have sent sovereign-bond yields for several southern European countries drifting higher, and have fuelled fears about the exposure of Europe's banks to indebted governments.

Attempts to rein in the public finances may calm bond markets but they also risk weakening growth, which makes life more difficult for exporters in places like China and America, and spells trouble of a different kind for the banks.

3. 'The New Normal' - Bill Gross is the world's largest bond fund manager and is therefore well worth listening to. He write a monthly newsletter and his July version is sweeping and profound. He argues the economists with names starting with R (Roubini, Reinhart, Rogoff) seem to have it right: a long balance sheet recession in the developed world is likely and there is not enough consumption in the developing world. He uses the big chart about unsustainable US debt which everyone should understand. There is just to much debt in the American system. Eventually it swamps an economy and consumers are saturated.

It is this lack of global aggregate demand – resulting from too much debt in parts of the global economy and not enough in others – that is the essence of the problem, which only economists with names beginning in R seem to understand. If policymakers could act in unison and smoothly transition maxed-out indebted consumer nations into future producers, while simultaneously convincing lightly indebted developing nations to consume more, then our predicament would be manageable. They cannot.

G-20 Toronto meetings aside, the world is caught up as it usually is in an “every nation for itself” mentality, with China taking its measured time to consume and the U.S. refusing to acknowledge its necessity to invest in goods for export. Consumption when brought forward must be financed, and that financing is a two-way bargain between borrower and creditor.

When debt levels become too high, lenders balk and even lenders of last resort – the sovereigns, the central banks, the supranational agencies – approach limits beyond which private enterprise’s productivity itself is threatened. We have arrived at a New Normal where, despite the introduction of 3 billion new consumers over the past several decades in “Chindia” and beyond, there is a lack of global aggregate demand or perhaps an inability or unwillingness to finance it. Slow growth in the developed world, insufficiently high levels of consumption in the emerging world, and seemingly inexplicable low total returns on investment portfolios – bonds and stocks – lie ahead.

Stop whispering (and start shouting) the words “New Normal” or perhaps begin to pronounce your last name with an RRRRRRRRRRRR. Our global economy, our use of debt, and our financial markets have changed, not our alphabet or dictionary.

4. Why China won't pull the trigger - Reuters reports that China's state fund manager, State Administration of Foreign Exchange (SAFE) has explained why it won't use the 'nuclear' option of selling US Treasuries and buying gold. Essentially, the US Treasuries market is the most liquid in the world and China doesn't have a choice. It doesn't want to see a big fall in the US dollar, though, and wants the Americans to act 'responsibly'.

It's a bit surprising the Chinese are being so transparent on this. I would have thought they would like to keep the Americans on their toes a bit. Gold bugs won't like what the Chinese have to say.

In a series of questions and answers posted on its website, www.safe.gov.cn, SAFE asked rhetorically whether China would use its $2.45 trillion stockpile of reserves, the world's largest, as a "nuclear weapon." SAFE said such concerns were completely unwarranted. "The U.S. Treasury market is the world's largest government bond market, and U.S. Treasury bonds deliver fair good security, liquidity and market depth with low transaction costs. "The U.S. Treasury market is a very important market for China," the agency said.

SAFE was lukewarm about gold as an investment. "It cannot become a main channel for investing our foreign exchange reserves," the agency said, noting the size of the gold market was limited and prices were volatile. Buying more gold would also not help much in diversifying China's reserves.

China has increased its gold holdings by more than 400 tonnes in the past few years to 1,054 tonnes. Even if it doubled that amount gold's share of SAFE's portfolio would increase by only one or two percentage points.

5. Even the Europeans are talking about it - The Globe and Mail reports that the European Union is considering put up the retirement age from 60 to 70 to avoid a fiscal meltdown in later years. When is John Key going to drop his ludicrous promise never to debate the issue of extending the retirement age and cutting the pension?

A European Union report calls on Europeans to work longer to keep receiving state pensions from cash-strapped governments. The European Commission said Wednesday that the average retirement age would have to increase from the current age of 60 to 70 by 2060 if workers are to continue supporting retirees at current rates.

Europe is aging as people live longer and birth rates fall gradually. Governments with mounting debt are hiking retirement ages to help reduce the expected pension shortfall. Germany will raise the retirement age to 67 in 2029. Spain is considering a similar hike and Britain is discussing increasing it to 68.

6. Taking the mort out of mortgage - Bruce Sheppard has written a useful piece at Stuff on how to think about mortgages. Sheppard likes splitting your home lending between floating and a variety of fixed mortgages.

When determining how to structure your borrowing you will need a mixture of variable and various fixed terms to take the extremes out of interest volatility and to ensure that you can also part repay without penalty at any time and also if you have to repay the lot break fees are minimised. As a rule of thumb, the minimum you should have on variable is three years of contracted repayments.

You should add to this a further sum for any likely repayments you think you might make in the next three years. For most people the variable proportion of their mortgage should be between 25 percent and 33 percent of the total borrowing. The remainder should be a mixture of fixed terms. I generally recommend that people put between 25 percent and 33 percent on a term of between 12 months and 24 months , on the basis of whichever one is cheapest, and a further 25 percent to 33 percent on between 3 and 5 years. 

7. Big bits of America bankrupt - Here's a New York Times piece on how the state government of Illinois, one of the largest such state governments in America, is essentially bankrupt and has stopped paying bills. This is where the real pain in America is kicking in. Obama can spend all he wants, but all he's doing is offsetting the cutting from the states, where most have balanced budget constitutions. California announced last week it would  cut public servant salaries to the minimum wage.

Even by the standards of this deficit-ridden state, Illinois’s comptroller, Daniel W. Hynes, faces an ugly balance sheet.

Precisely how ugly becomes clear when he beckons you into his office to examine his daily briefing memo. He picks the papers off his desk and points to a figure in red: $5.01 billion. “This is what the state owes right now to schools, rehabilitation centers, child care, the state university — and it’s getting worse every single day,” he says in his downtown office. Mr. Hynes shakes his head. “This is not some esoteric budget issue; we are not paying bills for absolutely essential services,” he says.

“That is obscene.”

8. Are you ready? - Ambrose Evans Pritchard from The Telegraph reports that Standard Chartered is warning clients to prepare for a 30% fall in property prices in the big Chinese cities of Beijing, Shanghai and Shenzen as China's monetary tightening bites.

China views soaring house prices as a threat to social stability, since workers are shut out of the market. The price-to-earnings ratio is 13 in Beijing and Shanghai, four times Western levels.

Charles Dumas from Lombard Street Research said China's boom had been driven by its fiscal stimulus of 13pc of GDP, the largest ever by major country in such a short period. The boost was concentrated in 2009, with credit growth running at 25pc of GDP. "The Chinese had nowhere to put their savings since real interest rates were negative and capital controls stopped them investing abroad, so they bought apartments," he said.

Wealthier families often hold three, four, or more properties as a hard asset to store wealth, leaving many vacant. This has disguised the scale of excess inventory. It is unclear what will happen if there is the same sort of investor flight seen already on the Shanghai bourse, which is down 55pc from its peak.

9. Totally irrelevant video - I can't embed this, but it's worth the click. It's that Downfall scene with Hitler being told that Paul the Octopus has just predicted he will lose the War. Luckily for the Octopus, Hitler is a vegetarian...

10. Totally irrelevant video - Ever wondered what you could do with Vuvuzela except for making a godawful noise? How about trying to blend it....