Monday's Top 10: The non-problem; avoiding Aussie banks; affordability; AU dairy stress; Ministry of Truth; news anchor losing it; Dilbert, and more

Here's my Top 10 links from around the Internet at 10:00 am today. We now have a Monday-Wednesday-Friday schedule for Top 10.

Bernard will be back with his version this Wednesday. We will have a guest posting on Friday.

As always, we welcome your additions in the comments below or via email to david.chaston@interest.co.nz.

See all previous Top 10s here.

1. A US federal deficit of 2.1% of GDP
What are they fighting about? The bi-partisan Congressional Budget Office says the US budget deficit will be only 2.1% of GDP, only US$378 billion in a US$17 trillion economy. The federal tax take will be US$3.4 trillion or less than 20% of GDP. By way of comparison, NZ's tax take is 31% of our GDP.

By the way, I am reading The Spirit Level at the moment and am yet to get to the part where I am impressed. Old or undated data, selectively presented. But really interesting all the same.

One of this things I noticed is there is lots of US state data on inequality - and a close reading shows that 'red states' - Republican (middle of the country) states - have the lowest levels of US inequality, whereas the liberal (Democrat) coasts are where the disparities are highest. Not something noted by the authors though.

If the current laws that govern federal taxes and spending do not change, the budget deficit will shrink this year to $642 billion, the Congressional Budget Office (CBO) estimates, the smallest shortfall since 2008.

Relative to the size of the economy, the deficit this year - at 4.0 percent of gross domestic product (GDP) - will be less than half as large as the shortfall in 2009, which was 10.1 percent of GDP.

Because revenues, under current law, are projected to rise more rapidly than spending in the next two years, deficits in CBO’s baseline projections continue to shrink, falling to 2.1 percent of GDP by 2015 (see Table 1 on page 8).

However, budget shortfalls are projected to increase later in the coming decade, reaching 3.5 percent of GDP in 2023, because of the pressures of an aging population, rising health care costs, an expansion of federal subsidies for health insurance, and growing interest payments on federal debt.

By comparison, the deficit averaged 3.1 percent of GDP over the past 40 years and 2.4 percent in the 40 years before fiscal year 2008, when the most recent recession began. During the next 10 years, both revenues and outlays are projected to be above their 40-year averages as a percentage of GDP (see Figure 1 on page 9).

2. Fund manager says, avoid Aussie banks
Matthew McLennan, who manages US$80 billion of assets in New York for First Eagle Investment Management, revealed to AFR Weekend he won’t invest in Australian banks because they are too risky and is concerned about the levels of private sector debt in Australia.

The ex Goldman Sachs Sydney banker is also worried about another financial bust.

The fund manager attacked “financial repression” by central banks which had cut real interest rates to record lows, and the policy known as “quantitative easing” whereby they print money to buy government debt, corporate bonds and shares, to bid up their prices above natural market levels and reduce the implied cost of capital.

“The problem with that mental model is that it assumes you are starting from a point of view of asset prices being below their equilibrium values and savings being excessive,” he said.

“So you are seeking to stimulate new investment, dissuade savings, and get asset prices back to their normal values. But if asset prices are already at ­reasonably elevated levels relative to long-term history, and savings are close to generational lows, it is not clear to me that repressing interest rates and engaging in quantitative easing is prudent policy.”

Mr McLennan said he thought an end game would arrive if people “start to realise that the quality of money has become impaired”.

“If we blow another bubble now that bursts, and the sovereign is forced to step in again with its higher level of starting debt, at a certain point the system has to become unsustainable,” he said.

“You either have to print more money or accept deflation. My fear is that the risk in the current global financial system is that you get one of these extreme corner solutions.”

3. In praise of debt ceilings
Despite the farcical process, a German professor argues that is is always better to slug it out now than to borrow endlessly without restriction and then suffer the end-of-the-line failure. More from Project Syndicate:

The wrangling about raising the US government’s borrowing limit – now thankfully over, at least for a few months – underscores the hazards posed by excessive state indebtedness. Governments nowadays are essentially running gigantic redistribution machines that steer funds from taxpayers to transfer recipients and other beneficiaries of public expenditure. The latter permanently ask for more, while the former zealously try to defend their purse.

In the end, the solution to this “redistribution battle” tends more often than not to be found in more government borrowing. For today’s democracies, the fact that those who will eventually have to pay the taxes to service the resulting debt cannot yet vote makes borrowing the most expedient way out of a messy political battle.

So, let us be grateful for strict debt ceilings, for they can help to nip disaster in the bud – even if bumping up against them can leave politicians slightly bruised.

4. Today's raw market data ...
A quick new-week update:

5. It's all about affordability
Some people are baffled by a new trend in the US of declining mobility. People are just not shifting to where there are high-paying jobs anymore, and that has plenty of heads scratching.

But it turns out the reason is essentially 'housing affordability'. The well-paid jobs may be there but the cost of housing and commuting makes a shift no easy decision. Sounds like New Zealand to me. In the end it comes down to local authorities adding a layer of rules (supported by local voters) that keep house prices high and neighbourhood character unchanged. Ultimate 'conservative' and usually promoted by left-green impulses.

The Washington Monthly has a very good assessment of the issue.

The underlying problem, however, isn’t the price of housing per se so much as its relationship to income. Since 2009, when the recession ended, the median price of a new house in the United States has risen 13 percent, even as median household income has fallen by about 4 percent. That doesn’t pose much of a problem for a migrating architect whose income is already well above the median, and who is likelier to have existing home equity that he can transfer to another state. But for construction workers, for example, it’s likely to be a big problem, and a reason why they can’t easily move to where the best-paying jobs are.

6. The cost of not making changes
In business, 'conservative' just doesn't work. The world is being changed by 'radical'. How fast you get left behind if you don't try substantial change is graphically illustrated by the Aussie dairy industry. They are now scrambling to remain relevant.

Believe it or not, there are remnants of the NZ dairy industry who still believe the Fonterra model was a wrong choice. I recall dairy advocates and Labour politicians visiting our offices vehement in their opposition to the Fonterra changes, opposing 'globalisation'. Where would NZ be today if we followed the Aussie approach? We wouldn't be setting any agendas, we would be taking scraps.

Mr Helou said Australian dairy production had declined while New Zealand’s had flourished.

"It’s a tale of two cities if you like."

He said a cooperative structure, like New Zealand dairy giant Fonterra, was the only way to compete globally.

"The old ways don’t work. The evidence is before us. We’ve declined amidst the most interesting, highest growth agri-sector business on the planet."

"Asia is at our doorstep and we are not really connecting there."

"This is the first major step to arresting the decline of our industry."

7. A bit player
New Zealand is a global player in the dairy trade. It is easy to jump to the conclusion that we rank the same way in dairy emissions. But it doesn't quite work out that way. Our dairy herd produces less than 0.5% of global dairy emissions, our beef herd 0.2%.

There is a big emission problem worldwide from cattle (beef and dairy) but New Zealand's contribution is almost non-existent. Our 10 million beef and cattle herds represent about 0.8% of the 1.3 billion on the planet. But the problem is enormous for India, Brazil and China who together have half, and the US , the EU and Argentina who together have about 20% of all cattle.

The world food industry may be in a sorry state, but I just don't buy into the extension that we are part of that. If there is 'waste' in the New Zealand food industry, it is more to do with high food regulatory standards than sloppiness or incompetence.

8. The Ministry of Truth
Another in our series: We Don't Know how Lucky We Are. Most of us now assume China is modernising and pushing ahead towards a more liberal state. But it is not true in the media. In their current crackdown against 'rumours' they are being particularly tough, and there are countless thousands of brave souls trying to expose the heavy handed suppression.

It is surprising (to me) how direct and specific the media instructions have become. You can follow the Chinese censor's directives on ChinaDigitalTimes, and their section MinistryOfTruth which chronicles these regular commands. (The bravery of the leakers should not be underestimated.) Here is a recent example:

State Council Information Office: Do not report the Yuyao Daily story “Yuyao Flood Spurs Mass Petitioning; Minority Behave in Extreme Manner.” Websites that have already posted the article are asked to immediately remove it. (October 16, 2013)

国新办：对于《余姚日报》发出的“余姚洪灾引发群体性上访 少数人员行为过激”一文不要报道，已经发表的网站请立即撤下稿件。

9. Losing it on air 'for the best possible reason'
HT Christov. Passionate, yes. Honest, undoubtedly. But are we really ready for 'radical' yet?

Seems to me the political world has gone 'conservative' (as in, lets not change anything, lets go back to what used to work). In this country, that's what Labour aims for, its what National is governing for, its what our Councils are trying to do, and it's certainly core to the Greens - in their case, waaay back. ditto, NZ First. All 'conservative'.

What this news anchor is really calling for is 'radical', as in never been done before.

We like it when we see it, but we always vote 'conservative'. Why is that? We don't even give new ideas a chance. We certainly don't tolerate any flaws in our politicians even though we ourselves are full of flaws. As for even the smallest bump in the road for something new in public policy, whole generations feel 'scarred' if they have to make some sacrifice or perceive 'unfairness'.

Our problem as voters is that we want benefits without pain or cost.

The problem isn't the politicians we elect, it is us. We have to get to a point where we value taking a chance, making a few mistakes as we learn - and vote that way. (Just like #6.)

10. Today's quote
"It doesn’t matter if you’re black or white ... the only color that really matters is green." – Family Guy