Thursday's Top 10 with NZ Mint: 'Profitable, cash-rich companies won't invest, so the government should'; 'Shift the retirement age to 80'; 'When fear becomes rational'; Helicopter cat; Dilbert

Here's my Top 10 links from around the Internet at 10:00 am (!) today in association with NZ Mint.

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 #1 from Felix Salmon on corporate hoarding and the failure of the global economy to invest savings in job creating activity that employs spare people and capital to expand output. Instead the hoarders put their money in government bonds. Someone has got to break this logjam.

1. A brilliant analysis - Reuters' Felix Salmon points out some obvious things about America's broken economy.

By implication much of the western world has the same problem.

Companies are building up increasingly large profits into piles of cash and are refusing to invest it, or borrow more and invest that extra money in extra output and jobs.

They are too scared about the future to do it, or less charitably, are instead paying it to shareholders and managers for the owners of capital to spend it. In turn those shareholders are also too scared to invest and instead are hoarding it in government bonds.

There is an investment drought and a type of mass hoarding phenonemon that is killing growth.

Just look at bond yields.

This is today's must read. I agree with his conclusion. Governments that have the confidence of bond markets should borrow with their ears pinned back and invest that money in infrastructure and new technologies (but not consumption). Otherwise we have a debt/deflation spiral that will make the Depression of the 1930s look like a picnic.

These two charts tell it all, and Felix explains it deftly:

Basically, we have low bond yields because the Fed has failed to do its job, and persuade the markets that it is capable of engineering a healthy economy over the long run. And we have high stock yields because the market has failed to do its job, which is to treat high corporate earnings as a fantastic opportunity to invest in the economy and build something even greater in the future. Just look at the amount of money which is flowing straight to corporations’ bottom lines, and not being put to good, productive work. Corporate profits now account for significantly more than 10% of GDP: that’s never happened before.

To spell this out: high corporate profits and low levels of job growth are two sides of the same coin. If things were working properly right now, companies would take their excess revenues and use them to hire more people. Instead, they’re basically just letting those excess revenues sit on their balance sheets as cash because they’re scared to invest in themselves. It’s frankly pathetic.

The solution to this problem is nothing complex — the arbitrage is sitting there in the first chart, plain for all to see. The government can borrow at 1.45%: it should do so, in vast quantities, and invest that money back into the economy itself. Take a few hundred billion dollars and use it to fix our broken infrastructure, to re-hire all those laid-off teachers and firefighters, to provide some kind of safety net for the millions of Americans who have been out of work for more than a year. Even if the real long-term return on any stimulus package was zero, the nominal long-term return would be well over 1.45%, making the investment worthwhile.

2. 'Move the retirement age to 70 or 80' - AIG's CEO said this. Here's his thinking.

“Retirement ages will have to move to 70, 80 years old,” Benmosche, who turned 68 last week, said during a weekend interview at his seaside villa in Dubrovnik, Croatia. “That would make pensions, medical services more affordable. They will keep people working longer and will take that burden off of the youth.”

3. Why Neo-Classical economics is bunk - Here's Australian Economist Steve Keen on BBC Radio's Newsnight programme explaining what caused the financial crisis and what needs to happen next. He starts around 1 min 30.

4. 'Fear has become all too rational' - Martin Wolf hits the nail on the head again at the FT.

How much pain can the countries under stress endure? Nobody knows. What would happen if a country left the eurozone? Nobody knows. Might even Germany consider exit? Nobody knows. What is the long-run strategy for exit from the crises? Nobody knows. Given such uncertainty, panic is, alas, rational. A fiat currency backed by heterogeneous sovereigns is irremediably fragile.

Before now, I had never really understood how the 1930s could happen. Now I do. All one needs are fragile economies, a rigid monetary regime, intense debate over what must be done, widespread belief that suffering is good, myopic politicians, an inability to co-operate and failure to stay ahead of events. Perhaps the panic will vanish. But investors who are buying bonds at current rates are indicating a deep aversion to the downside risks. Policy makers must eliminate this panic, not stoke it.

In the eurozone, they are failing to do so. If those with good credit refuse to support those under pressure, when the latter cannot save themselves, the system will surely perish. Nobody knows what damage this would do to the world economy.

5. 'Best of luck' - I'm a fan of Michael Lewis. Not everyone is.

Here's FTAlphaville pointing to Lewis' recent commencement address to his almer mater Princeton in which he highlights the role of luck in a person's career.

My case illustrates how success is always rationalized. People really don’t like to hear success explained away as luck — especially successful people. As they age, and succeed, people feel their success was somehow inevitable. They don’t want to acknowledge the role played by accident in their lives. There is a reason for this: the world does not want to acknowledge it either.

6. 'A lesson about debt, deleveraging and deflation' - Charles Hugh Smith has a nice economics 101 on the pervasive power of deleveraging and what it means for an economy.

This is why I reckon we face more of a risk of deflation than inflation in future.

7. Ever wondered how the really, really rich live? - There's a guy in the Hamptons with a twitter feed who tells the best stories about people with way too much money to know what to do with, New York Magazine reports.

Tell us your stories about how the rich live and what they spend it on. Any pool cleaners or nannies on Waiheke (or Herne Bay) who want to make themselves (in)famous?

8. Want to sleep tonight? - Then don't read this alarming chart deck from a former Goldman Sachs hedge fund manager (now research writer) predicting the end of the financial world in the next 18 months. HT Michael West at SMH.

All very plausible, but I just can't see the powers-that-be allowing it. They'll just print and print and bail and bail.

The Japanese scenario is more likely.

9. The impossible hamster - This video is a simplistic cheap shot with a disturbing ring of truth about it.

10. Some people do some totally weird things - Here's a flying cat. It was not harmed in the making of this helicopter. HT SMH.