Friday's Top 10 at 10 with NZ Mint: Bernanke's fiscal nerves; Australian airline lobbying; Renminbi convertibility; Synlait's old powder; Dilbert

Here are my Top 10 links from around the Internet at 10 to 12 pm, brought to you in association with New Zealand Mint for your reading pleasure.

I welcome your additions and comments below, or please send suggestions for Monday's Top 10 at 10 via email to bernard.hickey@interest.co.nz.

I'll pop any surplus suggestions I get into the comment stream

1. Even Bernanke is worried - Now even US Federal Reserve Chairman Ben Bernanke is worried about the ballooning US government deficit and debt.

In a fresh move for him, Helicopter Ben said in a speech overnight Americans would have to live within their means at some stage and can't rely on growth to solve the problem.

The deficit really does matter, he said.

Republicans such as Reagan and Cheney have believed for decades that growth would solve everything.

John Key seems of a similar view here.

At some stage politicians (and voters) will have to make choices.

Extend and pretend won't work for public finances either....unless you print money...and Bernanke is an expert at that.

Also in the speech he fueled speculation that the Fed will continue printing and might even expand it, even though the US economy is showing signs of recovery.

No wonder commodity prices are going through the roof.

America is an expert at one thing right now -- exporting inflation.

Here Bernanke bemoans the jobless recovery.

The economic recovery that began in the middle of 2009 appears to have strengthened in recent months, although, to date, growth has not been fast enough to bring about a significant improvement in the job market.Recent data do provide some grounds for optimism on the employment front; for example, initial claims for unemployment insurance have generally been trending down, and indicators of job openings and firms' hiring plans have improved.

Even so, with output growth likely to be moderate for awhile and with employers reportedly still reluctant to add to their payrolls, it will be several years before the unemployment rate has returned to a more normal level. Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.  

Bernanke also defended his money printing, saying it had been great for the stock market. Brilliant. The richest 1% have done well. Americans without jobs are no better off because those listed corporates are either hoarding more cash, investing overseas or handing cash back to those richest 1%.

But Ben's happy with his helicopter action...

A wide range of market indicators supports the view that the Federal Reserve's securities purchases have been effective at easing financial conditions. For example, since August, when we announced our policy of reinvesting maturing securities and signaled we were considering more purchases, equity prices have risen significantly, volatility in the equity market has fallen, corporate bond spreads have narrowed, and inflation compensation as measured in the market for inflation-indexed securities has risen from low to more normal levels.

Yields on 5- to 10-year Treasury securities initially declined markedly as markets priced in prospective Fed purchases; these yields subsequently rose, however, as investors became more optimistic about economic growth and as traders scaled back their expectations of future securities purchases. All of these developments are what one would expect to see when monetary policy becomes more accommodative, whether through conventional or less conventional means.

And here's his warning to the good gas guzzling, anti-taxing, pork chomping voters of America:

One way or the other, fiscal adjustments sufficient to stabilize the federal budget must occur at some point. The question is whether these adjustments will take place through a careful and deliberative process that weighs priorities and gives people adequate time to adjust to changes in government programs or tax policies, or whether the needed fiscal adjustments will be a rapid and painful response to a looming or actual fiscal crisis  

2. Australians have no shame - Qantas is unhappy with the extra competition it's been getting lately on its international routes. So its CEO is suggesting the government block new competition. Only in Australia.

CEOs in Australia have no shame in lobbying politicians for favours. There's a much less puritan approach to competition and a very healthy nationalism. Qantas is one of the worst. Just ask Air New Zealand about the Ansett Debacle. And Air NZ is trying to get in again with its purchase of a cornerstone stake in Pacific Blue.

Here's The Australian's John Durie reporting CEO Alan Joyce with his own bemoaning:

QANTAS boss Alan Joyce wants a moratorium on new international flights into Australia, claiming the flood of new airlines has crippled Qantas International. Joyce told a Melbourne Press Club luncheon yesterday:

"If we continue on our current path there will be a real question mark over the viability of Qantas International."

From 2003 to 2009, international capacity to Australia increased by 39 per cent, but inbound passengers increased by just 10 per cent. This shows the market didn't expand much. The new airlines, particularly those from the Middle East, were simply taking market share, as evidenced by Qantas's fall from 35 per cent of the international market to 20 per cent.

The Middle East airlines such as Qatar, Etihad and Emirates are in Joyce's sights.  

3. Convertibility coming - Xinhua reports China's foreign exchange regulator has announced plans to push for full capital account convertibility for the renminbi during the 12th five year plan.

This is all part of China's drive to wean itself off the global reserve currency in the the US dollar. All power to them.

What's New Zealand's five year plan for its currency?

And are we ready for the 'capital outflows' that China is keen encourage? (ie China buying assets offshore).

China will gradually make the Chinese currency convertible under capital account and make its convertibility measures in line with the needs of China's economic development, the State Administration of Foreign Exchange said in a statement on its website. Also, China will continue to improve the management of capital inflows and expand channels of capital outflows, the statement said.  

4. The problem with austerity - Nobel laureate economist Joe Stiglitz has highlighted in this Bloomberg report that Europe's austerity drive will be disastrous. He's a bit of a Keynesian. And thinks a little bit of inflation isn't a bad thing. That's one way to fix the debt problem...inflating it away. Who'd be a bond holder?

Prime Minister David Cameron’s government is implementing the largest fiscal squeeze since World War II to tackle the U.K.’s record deficit. The economy unexpectedly shrank 0.5 percent in the final three months of 2010 as the coldest December in a century hampered services and retailing, a report showed on Jan. 25.

“Whether it goes to double dip isn’t clear, but that it will be slower is very clear,” Stiglitz said.

“We’ve gone through this experiment over and over again of what will be the consequences of austerity, and it is a marked economic slowdown.”

Global inflation pressures from soaring food and commodity prices will also weigh on the economic recovery, according to Stiglitz. European economies will suffer as governments curb spending to narrow budget deficits and central banks rush to raise interest rates, he said.

“In Europe it’s going to play out worse because the budget-deficits problems are worse and the European Central Bank is much more committed to fighting inflation,” Stiglitz said. “The U.S. is a little bit more balanced in monetary policy and so they will be more willing to tolerate inflation.”

5. No worries then... - Wall St thinks the recession is over. In fact it's almost as if it never happened.

The WSJ reports investment banks paid out US$135 billion in compensation to their staff in 2010, up 5.7% from the previous year. Ben Bernanke can take some of the credit for this. Has everyone seen Inside Job yet?

One difference is that much of the pay now is deferred or in shares, rather than cash. Does this mean employees become the first creditors in line in bust caused by the employees?

"Things are shifting back to where they were before," said J. Robert Brown, a law professor at the University of Denver who studies compensation and corporate-governance issues.

Buried in the numbers, though, are signs of how Wall Street's pay culture is bending in response to pressure from regulators and shareholders. Last year, deferred compensation made up as much as half of total pay, up from about a third previously, estimates Alan Johnson, managing director of Johnson Associates Inc., a New York pay consultant.

Revenue is a major factor in compensation decisions, with the 25 companies paying out roughly one-third of total revenue. The percentage, known as compensation ratio, climbed to 32.5% last year from 31.1% in 2009. 

6. Comparing the US and Egypt - Harvard's Umair Haque is one of my favourite authors at the moment. He captures the mood of an increasingly disillusioned youth in the developed economies.

Here's his view on Egypt and the United States.

It was a society in stagnation, if not decline. Despite ostensible stability, its people — especially its young people — faced a future bleaker than the dark side of Pluto. For decades, the richest grew even richer, as national debt mounted, middle-class people tried to make ends meet, and upward mobility fell.

Government failed to address these problems, and the governed felt increasingly disenfranchised — and partisan. Mass unemployment metastasized from a temporary illness to a chronic condition. One of its major cities decided to erect a permanent tent city, for a permanently excluded, marginalized underclass. This isn't Tunisia, or Egypt — but America.

Yes, in many ways Egypt and America couldn't be more different. But the broad contours are just a little too similar for comfort. Consider a tweet that made the rounds this weekend. "Youth unemployment: #Yemen 49%, #Palestine 38%, #Morocco 35%, #Egypt 33%, #Tunisia 26%". It sounds staggering. But youth unemployment rates are 20-40% across Europe. And in the USA, estimates range from 20-50% depending on how you count, and when.

Egypt's youth unemployment crisis — which many seemed to think on Twitter was merely an Arab problem (oh, those Arabs!) is, in point of fact, a global one. What we're watching is a massive malfunctioning of the global economy.

At the root of the problem: dumb growth. Dumb growth is, in many ways, bogus — rather than reflecting enduring wealth creation, it largely reflects the transfer of wealth: from the poor to the rich, the young to the old, tomorrow to today, and human beings to corporate "people." Dumb growth is growth without prosperity. And it's far from an Egyptian problem.  

7. The problem with commodity exporting - NZHerald reports a problem that Cantabrian milk powder exporter Synlait has had with a distributor changing the expiry dates on bags of milk powder. This is one of the issues for New Zealand exporters who rely on being purely commodity exporters. It's a particular problem in the food industry where food safety punches well above its weight in the minds of consumers.

This must have been a fun email from Nigeria for Synlait to open...wonder if their spam filter stopped it...

Nigeria's National Agency for Food and Drug Administration and Control (NAFDAC) claimed that a local importer, Carnco Foods Nigeria, deliberately altered the actual expiry date on Synlait milk powder containers to increase the product's shelf life but Carnco said that the expiry date was changed by the manufacturer "to correct a printing error".

But Synlait Milk chief executive John Penno said that the expiry date was changed by an agent who originally bought the milk powder for distribution in China, and Synlait was not involved in the Nigerian deal. It was part of a much bigger consignment that had to be redirected out of the intended market, China. "We're aware of this transaction - we like to follow where our product goes," Penno said.

"It was redirected with our knowledge." He said the powder went to the Nigerian market with a two-year shelf life but it had been sitting on wharves in Nigeria so long that it was now past its expiry date and not fit for human consumption.  

8. The end of China's surplus - Harvard economics professor Martin Feldstein writes here that China's massive current account surplus of over 6% of GDP will eventually be whittled away by increased consumer spending. Hmmm. But here's the argument. He makes the point it will lift interest rates globally...

The policies that China will adopt as part of its new five-year plan will shrink its trade and current-account surpluses. It is possible that, before the end of the decade, China’s current-account surplus will move into deficit, as the country imports more than it exports and spends its foreign-investment income on imports rather than on foreign securities.

If that happens, China will no longer be a net buyer of US and other foreign bonds, putting upward pressure on interest rates in those countries.China’s national saving rate – including household saving and business saving – is now about 45% of its GDP, which is the highest rate in the world. But, looking ahead, the five-year plan will cause the saving rate to decline, as China seeks to increase consumer spending and therefore the standard of living of the average Chinese. The plan calls for a shift to higher real wages so that household income will rise as a share of GDP.

Moreover, state-owned enterprises will be required to pay out a larger portion of their earnings as dividends. And the government will increase its spending on consumption services like health care, education, and housing.

9. The Rich are happy - Bloomberg reports Britain's wealthy are planning to increase spending in 2011.

“It seems saving is giving way to spending for many affluent households in 2011,” Richard Brown, Head of Savings and Investments at HSBC, said in the report. “It will remain to be seen as the year progresses if this is indeed the case and the correct decision.”

The households plan to spend an average of 87,380 pounds this year compared with 81,060 pounds in 2010, HSBC said. Spending on “general home improvements” may quadruple, while expenditure on loft extensions may jump 45 percent, as wealthy Britons extend current properties instead of moving.

10. Totally irrelevant video - Jon Stewart does his think. I've included it because it has a muppet and Michael Steele. I love the muppets.