Friday's Top 10 with NZ Mint: US vs Brazil in round 2 of the currency wars; How the IMF, the WTO, the Fed and the ECB could intervene to stop the currency wars; China slower for longer; Dilbert; Clarke and Dawe

Here's my Top 10 links from around the Internet at 7.30 pm today in association with NZ Mint.

As always, we welcome your additions in the comments below or via email to

See all previous Top 10s here.

My must read is #4 on solving the currency wars. Some serious people are talking about some radical things.

1. The currency wars guy is back - FT reports Guido Mantega, the Brazilian finance minister who coined the phrase 'currency wars' two years ago, has come out again with another broadside aimed at the US Federal Reserve's QE Infinity.

He said the Bank of Japan's money printing move this week was a response to America's move.

QE Infinity risked unleashing a round of protectionism by countries desperate not to see their export sectors slammed by their currencies rising vs the US dollar, he said.

These competitive devaluations will make further trade liberalisation very difficult.

Here's more from Guido:

“It has to be understood that there are consequences,” Mr Mantega told the Financial Times in an interview on Thursday. The Fed’s QE3 programme would “only have a marginal benefit [in the US] as there is already no lack of liquidity . . . and that liquidity is not going into production.” He said it was instead depressing the dollar and aimed at boosting US exports.

“Japanese companies were complaining about their strong exchange rate. If a weaker dollar leads to rising trade competition, then that will also force Brazil to adopt measures to stop the real strengthening,” Mr Mantega said

2. And lo and behold - UPI reported Brazil announced plans to raise import tariffs on 200 commodities.

Tariff hikes of up to 25 percent will affect 100 import categories and will be followed in October with further tax rises on another 100 categories. Most of the affected items are capital goods from various industries, including petrochemicals and steel. The first list of 100 goods affects imports from outside the Mercosur trade bloc.

The tariff hikes, which were expected, are part of a government attempt to stimulate domestic production, officials say. Despite that explanation, the tariffs are seen by the industry as double-edged and likely to invite retaliatory steps.

3. Cheeky buggers - So then America protested at the new higher tariffs....and the Brazilians hit right back.

Here's US Trade Representative Ron Kirk and Brazilian Foreign Minister Antonio de Aguiar Patriota going at it hammer and tongs in this Chicago Tribune report.

In a letter to Brazil's foreign minister, Kirk expressed "in strong and clear terms" the U.S. concerns about plans to raise import tariffs on 100 foreign products, warning that they could spark retaliation from trade partners.

Foreign Minister Antonio de Aguiar Patriota replied in a letter on Thursday that the currency effects of U.S. monetary stimulus had forced Brazil to confront "a flood of imported goods at artificially low prices."

Kirk said the United States expects scheduled tariff increases around September 25 to "significantly hit U.S. exports to Brazil in key areas of export interest to the United States."

Patriota answered that the U.S. has been one of the main beneficiaries of a stronger Brazilian currency, which hit a 12-year high last year. American exports to Brazil nearly doubled from 2007 to 2011, he said, as Brazil went from the 16th to the eighth biggest market for U.S. goods. "It would be fairer if those increases took place in an environment not distorted by exchange rate misalignments and blatant government support," Patriota wrote.

4. Solving the currency wars - Fred Bergsten and Joseph Gagnon write at IIE about who started the currency wars and how to end them.
The currency wars started a decade ago, causing record trade imbalances. US and European policymakers tried at first to counter the effects and save jobs by encouraging a housing bubble. When the bubble popped, jobs disappeared. The United States and Europe then adopted a series of monetary and fiscal stimulus measures but prolonged financial deleveraging has offset much of their impact. Strong policy action is needed to end the currency hostilities.

What can be done? The rules of both the International Monetary Fund and World Trade Organization forbid currency manipulation to maintain trade surpluses and should be implemented at long last. Brazil has taken initiatives to this end and many other developing countries, who run trade deficits and lose from the currency wars, should join. The United States and the euro area, as major victims due to the international roles of their currencies, should help lead the effort. New bilateral and regional trade agreements, such as the Trans-Pacific Partnership and any new trans-Atlantic pact, should include such rules.

If the preferred multilateral remedies continue to fail, revealing a huge gap in the international economic architecture, the aggrieved countries should act together to induce currency aggressors to mend their ways. The most direct action would be countervailing currency intervention through which the Fed and the European Central Bank buy foreign currencies to offset the exchange rate impact of others' aggression. Another option would be a surcharge on imports from currency aggressors, as adopted unilaterally by the United States in 1971. A third approach would be to impose a transactions tax or a withholding tax on US and European assets accumulated by the aggressors to deter further reserve buildups. Given the huge costs of currency aggression, such measures may become necessary to resolve this global systemic problem and permit reasonable economic recovery in the United States and Europe.

5. What a waste of money - The Atlantic reports Millenials with college degrees in the United States are doing it real tough at the moment.

The Atlantic has been on the Millennial beat for a long time, explaining why 20-somethings aren't buying cars or houses or cable subscriptions, not getting married, not having children, and sometimes not even moving out of their parents' basements. The answer, again and again, is the economy.

Unemployment for adults between 20 and 24 is 14%, compared to the national average of 8.1%. But even those with jobs are facing something without modern precedent: Steadily falling annual earnings (graph via Progressive Policy Institute).

6. Why QE Infinity won't work - Gillian Tett writes at that lowering long term interest rates won't work because businesses are too scared to borrow, regardless.

Earlier this month, America’s Duke University asked the chief financial officers of 887 large companies how they might respond to falling interest rates. The results were noteworthy for economists, political pundits and investors alike. Some 91 per cent of firms said a one per cent fall in interest rates would have no impact on their business plans, while 84 per cent professed indifference towards even a two per cent fall. “CFOs believe that a monetary action would not be particularly effective,” the survey concluded; or not, that is, in terms of boosting investment and jobs.

The bigger worry is that the benefits of QE3 are so unclear, because the transmission mechanism is so muddled, while the potential costs are so high. “Anything that the Fed does is going to only have temporary effects,” James Bullard, head of the St Louis Regional Fed told Reuters earlier this week. Or as Richard Fisher, head of the Dallas Fed, observed in a powerful speech on Wednesday (which cited the Duke survey): “Nobody on the [Fed] committee . . . really knows what is holding back the economy. Nobody really knows what will work to get the economy back on course. The very people we wish to stoke consumption and final demand by creating jobs and expanding business fixed investment are not responding to our [Fed] policy initiatives as well as theory might suggest.”

7. Why is labour productivity falling - Martin Wolf at looks at this remarkable phenomenon now sweeping Britain, America and Europe. This shouldn't be happening. Labour productivity normally rises during and after a recession as the 'dead wood' is cleaned out and employers run existing workers harder and invest in new technology to boost output per worker per hour.

That's not happening this time around. Here's Wolf:

I can imagine three plausible explanations: cyclical labour hoarding; substitution of labour for capital; and huge obstacles to the efficient deployment of capital.

Labour hoarding is surely part of the story. Corporate finances are strong, which makes the hoarding affordable – and indeed, desirable in the medium term. Moreover, real wages have been falling, making it cheaper to retain workers. Yet, though this must be part of the story, it cannot be all of it. It does not explain why employment has recently been rising. Moreover, as the stagnation continues, hoarding must make less sense. Yet employment stays robust.

Falling real wages also justify substituting labour for capital. I suspect this is part of what has happened. Yet it is hard to believe it explains much of a shortfall of 12 per cent in output per worker, relative to the pre-crisis trend.

Mr Broadbent suggests a third cause: misallocation of capital due to a defective financial system. The decline in the rate of overall investment is not big enough to explain the productivity puzzle. But he notes that prices and profitability have diverged across sectors to a greater extent than normal. Yet this has not triggered a large reallocation of capital to high-return activities. As a result, “some firms are kept in business ... despite making relatively low returns. Others, able to expand but unable to obtain the finance to do so, are forced to substitute labour for capital”.

8. Selling the family silver - The Guardian reports on the mother of all fire sales now being held in Greece to raise money to repay creditors.

Greece has announced it will sell anything it can do without – and in the case of the debt-choked nation that means letting go of islands, royal palaces, prime real estate, marinas, airports, roads, the state-owned gas company, lottery and post office. Indeed anything, really, that can be sold. Earlier this year, the cash-strapped culture ministry even announced it would make the Acropolis more "readily available" for photographers and film crews. Previously, the ancient site had been regarded as "too sacred' to rent out or besmirch with commercial use.

This month the conservative-led coalition, in power since June, declared that it had also pinpointed at least 40 uninhabited islands which it planned to lease out for the development of "tourism ventures".

9. Slower for longer - Bloomberg reports a state economist in China saying the slowdown happening there now could take longer than the slowdown seen after the Lehman crisis in 2008.

“The slowdown will definitely extend into the first quarter of next year,” said Yuan, 58, who advises the government without being directly involved in policy making. “That will provide a good starting point for the new generation of leadership to make a turnaround, because things can’t get worse.”

The Communist Party has yet to announce a date for the congress this year that will start the process of the leadership handover. Lu Ting, chief Greater China economist at Bank of America Corp., said this month that the nation had “policy paralysis” as a result of the pending transition.

Yuan, who also teaches at Tsinghua University in Beijing, said unsustainable local-government spending plans will also contribute to the slowdown. “China’s medium and small-sized businesses are finding it increasingly hard to borrow money from banks -- the most fundamental part of the economy is suffering,” Yuan said.

10. Totally Clarke and Dawe on the new Queensland Premier. He's not happy with the Premiership he bought. I have no idea what they're talking about. But I still laughed.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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#3 reminds me of when I was on a project team doing an independent valuation of a Brazilian investment during the first election of Lula de Silva. The fund manager insisted that the low Real was due to currency manipulation by the US Govt as they did not want a perceived socialist like Lula in power. I thought he was talking absolute rubbish at the time. Now I think that he was probably correct.

The Scarfie is good with patterns and one pattern he has noticed is the time of day the top ten is posted to the news feed. Early in the week it is like a truck and trailer with the 90@9, following up the rear pretty closely. But later in the week a lagg sets in and it gets later and later, but by Friday it is so late to class that is almost deserves a detention. I mean it might as well wait until Saturday.
But the Scarfie also ponders the reasons for this. Is the case that the plethora of bull***t, I mean news, being written around the world over the weekend is simply over flowing Bernards' in tray early in the week? Or is it that the Friday drinkies means that Bernard is half cut when compiling the Friday segment? There is no problem with this of course because the Scarfie being half cut reading it, thus putting things on an even keel.

Incorrect, and shame on you for attributing such base motivations as alchoholism or expediency to interest team behaviour.
As Wolly & co correctly determined, interest is an influential arm of the economic establishment, capable of influencing wider public opinions (hence the wider economy) with the present role being to spread negativity and gloom. Obviously as Wolly knows this doom and gloom is unfounded, and plays an important role in economic performance, hence his regular criticism of the establishment mandate on the top ten pages. However Bernard and co are a well oiled propaganda machine, and so the top ten is being moved later in the day, later in the week, in an attempt to manage dissent and manufacture consent for doomster opinion (note the lack of comments on the later in the day, later in the week top ten pages?).
As anybody who is good with patterns well knows, everything is a conspiracy, and if its not a conspiracy, its a conspiracy that its not a conspiracy. You just need to put a few things together, Bernard is constantly negative, he can't justify why he is constantly negative (at least to the extent Wollys life is a-ok), economics talks a lot about about confidence, negative media opinions are bad for confidence, the RBNZ likes to monitor and report confidence in its confidence reports and so interest is part of the establishment tasked with negative confidence. All clearly based on flawless logic.

Hmmmmm....interesting observations Nic NZ...yes there seems to be a move afoot to void the site of comments that cut to the bone and expose the naked banking theft going on with the full support of the govt of course....unfortunately the banks control over the economy and Kiwi culture is now complete...we will never be a nation of thrift and prudent behaviour...the whole system is a corruption aimed at boosting bank profits from flogging credit to fools who lack the brains to realise they are being farmed. It just so happens that this time round the banks have as partners in crime a bunch of pollies dead keen on getting into bed with them.
Soon the gloss that fiddle depends upon will wear off and the stupid media will take a punt that they are better off with a Shearer in charge...and that will signal a return to the socialist splurge with gusto...a great theft and handout era will be back...How long it will last who knows but in the end the IMF will arrive to bash and slash.

unfortunately the banks control over the economy and Kiwi culture is now complete...we will never be a nation of thrift and prudent behaviour...the whole system is a corruption aimed at boosting bank profits from flogging credit to fools who lack the brains to realise they are being farmed
So true, its amazing that liberals don't understand why beating personal responsibility into others is such a key conservative value. Its because the banking system and politicians are already in your brain making you behave imprudently. Oh well back on with the tin foil hat for me...

Nic the NZer - I am unsure why you always use the word Liberals so loosely and don't define exactly which Liberal concept to which you are referring. There are many forms of idealogy under the banner of Liberalism.
If you think the status quo is applying the true form of Libertarianism then you are sorely mistaken. You state "that liberals don't understand why beating personal responsibility into others is such a key conservative value". The world has never experienced a true form of Libertarianism ever........The system is a failure because of Liberal Socialism.....the inherent rights of individuals has gone. You cannot have a world where peace, prosperity etc exist for all when the rights of the individuals are eroded. To be united as "one" means that we have to firstly recognise the "ONE" (Individual) and set a platform so this can never be breached.
If you care about people and want people to get the best value out of life then perhaps you will realise that personal responsibility is balanced with personal obligations to treat others without fraud or force as a mechanism.  It is self-interest groups who use the Political and Legislative framework to advance their agends that is the cause of all problems humans have and have ever had......The banking system and politicians can only get into an individuals brain when the individual abdicates responsibility for themselves and their obligations to themselves and the whole.....and when the individual abdicates these responsibilities we end up with the BS system we all have and all the lever pulling that the system has.
Everyone is running around blind blaming everything and everyone else but themselves who actually allowed this system to develop. The interest groups both big and small who lobby Government for control in any area of an individuals life are the ones who have directly caused this problem as the interest groups got Govt to legislate control over people's lives.
Maybe you should read some of Aristotles work to obtain a fair and balanced view.

For the purposes of this discussion you can take it that I use the following definition of a liberal,
and of course its always good news to have this guy taking responsibility for personal responsibility. Whenever Limbaugh is on the air, everyone knows who to blame for the drop in personal responsiblity,
Other than these notes to clarify my position however, I leave the floor open for a lengthy disitation on all the inherent flaws in Socialist thinking. I expect you will want to cover off topics such as 'There would be no third world if nobody ever thought of socialism' and 'If only America could abolish income tax, then everybody would just get along'. Feel free to include obscure topics like Marx clear foreshadowing of the need for an imaginary environmental crisis in 'Das Capital'.

Actually, if you had an infinite store of resources, infinite acreage, you could have ;individual rights'.
But for someone who owes quality his existence to the repression of others, that's an invalid comment.
We started with the whole planet being 'the commons'. It mostly isn't, now. Which means that as you crowd on past 7 billion, heading for 9 or 10, 'individual rights' become a fiction. Something to believe in.
Whether we are collectively altruistic, inter-personally respectful, or outright selfish, makes little difference where we are now.

Or far fewer ppl....hence why I can see why the pacific islanders/maori didnt own land or really have a concept of it, it was indeed all the commons they simply kept moving once an area didnt provide.
It is only when population gets to a high enough density that land ownership is a necessity.

The Scarfie is good with patterns and one pattern he has noticed is the time of day the top ten is posted to the news feed. Early in the week it is like a truck and trailer with the 90@9, following up the rear pretty closely. But later in the week a lagg sets in and it gets later and later,
Increased flow of information increases the entrophy .Hawkings likened this to his bedroom,which starts out as an ordered (tidy room) on monday,to a disordered (untidy room) by Friday.
This is a problematic issue in communication theory,and in communicating say economic analysis,policy outcomes,and decision making.
The problematic issue is an overuse of quasi-sophistry in analysis and summary statements.And often the underlying message gets lost in the noise.
An example is that very few could write a paragraph ( an abstract) outlining the economic problems and some simplistic solutions that are applicable to the problem.
Politicians more often confuse the underlying problem,without emphasising the message clearly and succintly,and issue policy statements that are often open and entrophic.
The newly emergent paradigm for simplistic communication and response behaviour is nudging,Here greater reduction increases the outcome expectations by increasing the population of understanding.
The UK uses this for a number of issues,such as fraud and debt reduction and provides a good description.
There are numerous other lessons which are being used across the private and public sectors that seek to help to ensure that people engage with and understand the messages being conveyed. Daniel Kahneman, the psychologist who won the Nobel prize for economics, demonstrates that there are a number of ways of making messages more persuasive. These include:

not using complex language where simple language will do;

highlighting key information in bold text;

using colour: bright red or blue is more likely to be believed than middling shades of green, yellow or pale blue (while using too many colours can confuse the audience)
In local government the Chathams council provides a good example,something that would not be seen in the larger cities.
Another example that is of Paul Volcker,who was highly critical of the Dodds Franks bill,with its over 1200 pages.who suggested that the bill could have been 4 pages,with empowering legislation for a small number of regulators and some very harsh penalties that would have clearly identified risk to financial institutions and its players.there is an interesting discussion on this by Niall Ferguson in the Reith lectures,where he proposes the devolution from the rule of law to the rule of law in US business.
In summary one could suggest,that there is a very complex world out there,there are risks and rewards,do risks outweigh rewards in decision making,are risks clearly communicated in  NZ and is behaviour reponsive.What are the question that need to be asked that do not devolve into rhectoric?.

You remind me of the paper "Critical Theory and Criticism in Architecture". I was maked 7/10 for one paper with the criticism level that it appeared I was trying to obfuscate rather than clarify. That was confusing because essentially that is what they we teaching us to do, just pick up any Architectural magazine and see for yourself. I was just having fun and fortunately my mind is not as impressionable as the kids there. See to me it is pretentiousness, which is a close kin to arrogance. I prefer to let me designs do the talking, if they are good I won't need to tell people they are(or by default that I am)
Good post btw, hope it isn't lost in the noise.

Wouldn't want to upset this game, would we? Brazil needs to pull its head in.

Clive and Cambell...
And this one might help to explain why the flow for the mining valve is broken

Gibber - thanks for posting those two links, well worth the read. 

Gummie's guessing that whether you vote Democrat or Republican the outcome will be pretty much the same : The government will hinder the progress of the folks on the left , in trying to raise themselves , set up small businesses , gain further education , create & innovate , whatever .......
...... and the fat cat on the right will continue to be a protected species , 'cos the government reckons he's the job creator and the innovator ( when he's clearly neither of those two things )  ....
.... and because they're scared of what will happen when he screws up ...... ... you're too-big-to-fail when our political party needs your financial support !

There is a possibility that the arrogance of the GOP, born of their belief in their "right to rule" just might explode in their faces this time round. If Romnney's hand is forced and he publishes his tax returns for the past 20 years it might prove to be the final catalyst in exposing the greed that has run politics for so long. His greed and exploitation of the system has the hallmarks of collapsing the house of cards. The complacency, the belief, the arrogance, might bring it all down.

Mutt Romney is just the product of an unjust system ....... the American tax code is 9000 pages long , plus 10 times that length in amendments ........
..... he's used the system very successfully . Good on him .
But is it gonna benefit folks in the future , as it has in the past ? ...... I think not . For my money , the Yanks desperately need to get cracking on reforming their tax code . They're making it so hard for small enterprises to establish . The very place where jobs and innovation really flourish .

Reform to the Tax Code? .. Ha .. they need to reform the "Tax Loopholes" .. General Electric, one of the largest US manufacturing companies, with global reach, very profitable, pays no tax at all.

Yes , that is exactly what I am saying ....
...... it won't happen , of course !

GBH - I think the Gummies guessing is spot's the dull as ditch water types.....who are.....always......looking at bread through another mans window.... and...... what's bred in the bones will come out in the flesh...... the fat cat steals the cream.....and......he who steals the cross off the donkeys back......the stones of the road are against the millstone is around your own neck !!!!

7 - Wolf is full of it - misses the point.
Labour is work. I note the 'new technology' comment, so we can take it as read that machinery/fuel are part of 'productivity'. A tractor driver can be as 'productive' as he likes, but if the tractor fuel doubles in price, or lowers in quality (comes to the same thing) then more productive he won't be.

Lots of ideas but oh no it cant be lack of cheap energy....the bleeding obvious one....

Recall that Simpsons episode were Homer takes clown is another fool...this one is a Keynesian Clown...the most dangerous idiot to be had...

Interetsting piece of reseacrh / comment on NZ v USA politics,
"Notes on the Political Economy of Redistribution"
"OK, it should be obvious that while this model is pretty, it falls down badly in the realism department. For one thing, median-voter models of politics suggest that the parties should converge on similar policies [NZ, UK etc ]; in fact, they’re deeply polarized." [USA]