Wednesday's Top 10 with NZ Mint: Europe's Zombie Bank feedback loop; PIMCO details 4 big global risks; The higher education bubble; Spike Jonze, Yo Yo Ma and The Swan; Dilbert

Here's my Top 10 links from around the Internet at 10 to 11 am in association with NZ Mint.

I'll pop the extras into the comment stream. See all previous Top 10s here.

I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

Some cracking cartoons in today's Top 10. Have you noticed lately I've been covering my ears...

1. The Invasion of the Zombie Banks - Economics professor Tyler Cowen writes at The New York Times about the fundamental problem inside the European Sovereign Debt crisis.

Fear that Greece, Ireland and Portugal will eventualy be forced to leave the euro is emptying their banks in a series of silent bank runs that is creating an ultimately fatal negative feedback look.

It's today's chilling must read.

Cowen's description of Zombie banks roaming the Irish, Greek and Portugese economies is frankly frightening.

Their only way out is to exit the Euro.

This European mess is so far from fixed. It's not funny.

Here's a taste. 

IS a euro held in an Irish bank in Dublin, or in a Portuguese bank in Lisbon, as sound and secure as a euro in a German bank in Berlin? That apparently simple question holds the key to understanding why the euro zone may splinter and bring a new financial crisis.

In Ireland, there has been a “silent bank run” on financial institutions for much of the last year. In February, for instance, Irish private sector deposits dropped at an annual rate of 9.8 percent. That’s largely because some depositors doubt the commitment of the Irish government to the euro. They fear that they will wake up one morning to frozen bank accounts, followed by the conversion of their euro deposits into a lesser-valued new Irish currency. Pre-emptively, the depositors send their money outside Ireland, where it still represents safe euros or perhaps sterling, accessible by bank transfers and A.T.M. cards.

This flight of capital reflects a centuries-old economic principle known as Gresham’s Law, sometimes expressed casually as “bad money drives out good money.” In this context, if two assets — euros inside and outside Ireland — are not equal in value in the eyes of the marketplace, sooner or later the legally fixed price parity will fall apart.

If enough depositors fear frozen accounts, the banks will be emptied out, and they also will require additional government bailouts, on top of the bailouts for the bad real estate loans. The banks come to resemble empty shells, conduits for public aid but shrinking and unprofitable as businesses — and, to a large extent, that is already the case in Ireland. Portugal is moving in this same direction, toward being a land inhabited by zombie banks.

2. It's happening already - The India Times reports the BRICs (Brazil, Russia, India and China) agreed quietly last week at a conference in Brazil to use their own currencies instead of the US dollar when lending to each other. Step by step, the US dollar's hegemony is being dismantled.

The agreement, the first-of-its-kind, was signed at the 3rd BRICS summit here attended by Indian Prime Minister Manmohan Singh, China's Hu Jintao, Brazil's Dilma Rousseff, Russia's Dmitry Medvedev and South Africa's Jacob Zuma.

"Our designated banks have signed a framework agreement on financial cooperation which envisages grant of credit in local currencies and cooperation in capital markets and other financial services," Manmohan Singh told reporters at a news conference with other BRICS leaders.

But the agreement is confined to credit and not trade. BRICS economies hold 40 percent of the world's currency reserves, the majority of which is still in US dollars.

3. Capitalism is failing the middle class - Chrystia Freeland writes at Reuters about how the version of capitalism we have now where multinationals roam the planet looking for lower cost options to deliver higher profits for shareholders and bonuses for a global elite of executives is killing the middle class, and ultimately the economies in which they are based.

Sound familiar?

Global capitalism isn’t working for the American middle class. That isn’t a headline from the left-leaning Huffington Post, or a comment on Glenn Beck’s right-wing populist blackboard. It is, instead, the conclusion of a rigorous analysis bearing the imprimatur of the U.S. establishment: the paper’s lead author is Michael Spence, recipient of the Nobel Prize in economic sciences, and it was published by the Council on Foreign Relations.

Spence and his co-author, Sandile Hlatshwayo, examined the changes in the structure of the U.S. economy, particularly employment trends, over the past 20 years. They found that value added per U.S. worker increased sharply during that period – 21 per cent for the economy as a whole, and 44 per cent in the “tradable” sector, which is geek-speak for those businesses integrated into the global economy. But even as productivity soared, wages and job opportunities stagnated.

The take-away is this: Globalization is making U.S. companies more productive, but the benefits are mostly being enjoyed by the C-suite. The middle class, meanwhile, is struggling to find work, and many of the jobs available are poorly paid.

Here’s how Spence and Hlatshwayo put it: “The most educated, who work in the highly compensated jobs of the tradable and non-tradable sectors, have high and rising incomes and interesting and challenging employment opportunities, domestically and abroad. Many of the middle-income group, however, are seeing employment options narrow and incomes stagnate.”

4. Here's 20 signs that we're approaching a Global Food Crisis - Michael Snyder lists them at Business Insider and says the following:

It may not be today, and it may not be tomorrow, but it is going to happen.  Crazy weather and horrifying natural disasters have played havoc with agricultural production in many areas of the globe over the past couple of years. 

Meanwhile, the price of oil has begun to skyrocket.  The entire global economy is predicated on the ability to use massive amounts of inexpensive oil to cheaply produce food and other goods and transport them over vast distances.  Without cheap oil the whole game changes. 

Topsoil is being depleted at a staggering rate and key aquifers all over the world are being drained at an alarming pace.  Global food prices are already at an all-time high and they continue to move up aggressively.  So what is going to happen to our world when hundreds of millions more people cannot afford to feed themselves?

5. Four global risks - PIMCO CEO Mohamed El Irian writes at Project Syndicate about four global risks to the economic recovery.

They are the shocks to both supply and demand from the North African unrest and Japanese earthquake; the European Sovereign Debt Crisis; the continued fall in US house prices and America's ugly fiscal position, which could destory the US dollar as the reserve currency.

Remember El Irian is the CEO of the world's biggest bond fund, which has hundreds of analysts and more than US$1 trillion in investments at stake. Not a nutter with no research.

Here's El Irian:

The longer the US postpones the day of reckoning, the greater the risk to the dollar’s global standing as the world’s main reserve currency, and to the attractiveness of US government bonds as the true “risk-free” financial benchmark.

The world has changed its supplier of global public goods in the past. The last time it happened, after World War II, an energized US replaced a devastated Britain. By contrast, there is no country today that is able and willing to step in should the US fail to get its act together.

These four risks are material and consequential, and each is growing in importance. Fortunately, none of them is yet transformational for the global economy, and together they do not yet constitute a disruptive critical mass. But this is not to say that the global economy is in a safe zone. On the contrary, it is caught in a duel between healing and disruptive influences, in which it can ill afford any further intensification of the latter.

6. A tax who's time has come - Ha Joon Chang and Duncan Green write at The Guardian that The Robin Hood or Tobin Tax (Financial Transactions Tax (FTT) is a tax who's time has come. Fair enough.

They also make some good points about capital controls.

Of course, the FTT alone will not achieve much in terms of stabilising our financial system. It needs to be implemented as a part of a comprehensive package.

First, countries that cannot issue "hard currencies" should be allowed to use capital controls. The significant change of position by the IMF in this regard following the 2008 crisis is encouraging, but capital controls should be seen as normal policy tools – rather than a measure of last resort, as the IMF still suggests.

7. An education bubble - Peter Thiel, the tech investor behind Facebook, Paypal, Xero and Pacific Fibre, has picked a bubble in higher education. He picked the bubble in tech stocks in 2000 and the housing bubble in 2006, so he's got a good track record.

Here's what he says via TechCrunch:

“A true bubble is when something is overvalued and intensely believed,” he says. “Education may be the only thing people still believe in in the United States. To question education is really dangerous. It is the absolute taboo. It’s like telling the world there’s no Santa Claus.”

Like the housing bubble, the education bubble is about security and insurance against the future. Both whisper a seductive promise into the ears of worried Americans: Do this and you will be safe. The excesses of both were always excused by a core national belief that no matter what happens in the world, these were the best investments you could make. Housing prices would always go up, and you will always make more money if you are college educated.

Like any good bubble, this belief– while rooted in truth– gets pushed to unhealthy levels. Thiel talks about consumption masquerading as investment during the housing bubble, as people would take out speculative interest-only loans to get a bigger house with a pool and tell themselves they were being frugal and saving for retirement. Similarly, the idea that attending Harvard is all about learning? Yeah. No one pays a quarter of a million dollars just to read Chaucer. The implicit promise is that you work hard to get there, and then you are set for life.  It can lead to an unhealthy sense of entitlement. “It’s what you’ve been told all your life, and it’s how schools rationalize a quarter of a million dollars in debt,” Thiel says.

8. The problem with globalisation - David Wessel writes at WSJ.com about the problem at the heart of the US economy. Large corporates are sacking locals, increasing profits and employing more overseas. And not paying tax at home.

And then everyone wonders why US consumers aren't spending so much, but the debt remains....

U.S. multinational corporations, the big brand-name companies that employ a fifth of all American workers, have been hiring abroad while cutting back at home, sharpening the debate over globalization's effect on the U.S. economy.

The companies cut their work forces in the U.S. by 2.9 million during the 2000s while increasing employment overseas by 2.4 million, new data from the U.S. Commerce Department show. That's a big switch from the 1990s, when they added jobs everywhere: 4.4 million in the U.S. and 2.7 million abroad.

In all, U.S. multinationals employed 21.1 million people at home in 2009 and 10.3 million elsewhere, including increasing numbers of higher-skilled foreign workers.

The trend highlights the growing importance of other economies, particularly in rapidly growing Asia, to big U.S. businesses such as General Electric Co., Caterpillar Inc., MicrosoftCorp. and Wal-Mart Stores Inc.

9. What hasn't someone been imprisoned? - Anderson Cooper at CNN talks to Carl Levin and Matt Taibbi about why no one at Goldman Sachs had been prosecuted.

It's good to see this going mainstream.

10. Totally weird video from Spike Jonze with hip hop dancer Lil Buck and cellist Yo Yo Ma playing Emile Saint Saens' "The Swan".

Strangely compelling.