Wednesday's Top 10: So much cash and so little consumer price inflation (but plenty of asset bubbles); The amazing Feargal O'Rourke; Mutant ninja companies; Dilbert

Here's my Top 10 links from around the Internet at 1 pm today. As always, 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 #9 on what sugar is doing to the world. 

1. They should know - Ambrose Evans Pritchard reports via The Telegraph that JP Morgan is saying its measure of excess liquidity (ie too much cash) in the global financial system has reached a record high.

It's little wonder then that asset bubbles are blowing up all around the world, particularly in property and stock markets. So much money is being printed.

Yet actual consumer price inflation is dead in the water.

The money is chasing assets, but it's not chasing products, investment, jobs or incomes.

How does the money jump the species barrier? Why isn't all this business confidence, profitability and cheap money turning into jobs, real investment and wages?

That is the central conundrum facing central bankers and I haven't seen an answer yet. There's a few suggestions, including a rising profit share at the expense of a falling wage share, along with a still heavily indebted household sector. Is it any wonder consumers aren't buying products when they can only just afford the interest on the debt they built up over the last decade?

There's a few who suggest the central banks should be using the freshly printed dosh to hand over to indebted consumers to retire debt, rather than to hand over to cashed-up bankers in exchange for bonds. But no one who is actually in power is saying this...

Yet.

Here's Ambrose with the latest handwringing from one of the banks benefiting from all that printed money... The chart below is hilarious.

"The current episode of excess liquidity, which began in May 2012, appears to have been the most extreme ever in terms of its magnitude," said the report, written by Nikolaos Panigirtzoglu and Matthew Lehmann from the bank's global asset allocation team.

They said the latest surge is far beyond anything seen in the last three episodes of excess liquidity: 1993-1995, 2001-2006, and during the Lehman emergency response from October 2008 to September 2010, all of which set off a blistering rise in asset prices.

2. Slosh, slosh, slosh - Ambrose then looks at where the money is sloshing and who is sloshing it. The Chinese are just as big a culprit as the Americans, the Brits and the Japanese, he says. 

They argue that the global M2 money supply has risen by $3 trillion this year, up 4.6pc in just nine months to $66 trillion. Roughly $1 trillion is showing up in the G4 bloc of the US, eurozone, Japan, and the UK.

The lion's share, some $2 trillion, is showing up in emerging markets where credit continued to surge at $170bn a month in July and August despite the Fed Taper scare earlier that hit the Fragile Five (Brazil, India, Indonesia, South Africa, and Turkey). Mr Panigirtzoglu said there is an internal credit boom in emerging markets that is running in parallel to QE in the West.

My guess is that China has accounted for a fair chunk of the latest growth since it has reverted to excess credit yet again, shovelling loans at the state behemoths, hoping to squeeze a lit more juice out of that exhausted catch-up model. I also think that this $2 trillion jump is linked to QE by the Fed, Bank of England, the Bank of Japan, and to the ECB's backdoor support for Club Med bonds. Money has been pushed out into Asia, Latin America, and Africa, but this can be overstated.

3. 'There's a piece of plastic in the vat' - Anyone interested in the Fonterra botulism scare needs to read yesterday's 163 page report from cover to cover (I did) to understand what went wrong.

It all started on February 2, 2012 when a worker at Fonterra's Hautapu plant noticed a plastic torch had been sucked into a pipe and a bit of the lens had broken off and been sucked into the machine. The report then details the 21 decision points over the next 18 months where disaster could have been averted. Of course, luckily for everyone, no one got sick. But I bet there's a few sick execs within Fonterra right now. 

Fonterra should be congratulated for writing a transparent and accessible report. It is a must-read for anyone in a big complex company dealing with food safety issues and who has to think about managing a crisis across time zones, cultures and several types of media. The timeline starting on Page 37 is where the juice is.

4. Don't give up on innovation - Humans are a remarkable lot and we shouldn't give up on our amazing ability to innovate to get ourselves out of all sorts of trouble ranging from climate change to resource constraints. Here's The Atlantic with a list of 50 great innovations.

5. China's unsustainable growth - This is one for everyone in New Zealand to watch. The IMF's Asia Pacific Division chief Steven Barnett writes here about the long term problems. 

Borrow and spend, or in China’s case, borrow and invest works great to prop up growth. At least for a while. But eventually, debt rises, investment becomes less productive, and the risks rise.

Fortunately, China’s economy still has considerable buffers. The risks to the outlook in the near-term, therefore, is extremely low. But the economy is becoming more vulnerable on several fronts: surging credit, strains on local government finances, and weakening balance sheets in parts of the corporate sector. Credit provides the clearest example. A broad measure of credit (total social financing) had held steady at about 130 percent of GDP for much of the 2000s. However, since 2008, it has shot up to around 200 percent of GDP; an increase of 70 percent of GDP in 4½ years.

6. Big Chinese changes afoot - Bloomberg reports there's a big Communist party shindig coming up in China next month that could herald big economic reforms, but few political reforms.

Premier Li Keqiang has pledged to cut the state’s role in the economy, change the financial and fiscal systems, and overhaul land and household registration rules to sustain growth. Analysts surveyed by Bloomberg News this month said policies flowing from the meeting, called the third plenum, will reduce the odds of a severe slowdown and help Chinabecome a high-income country by 2030.

7. A local hero - This Bloomberg profile of the Irish tax accountant, Feargal O'Rourke, who designed the 'double Irish' and the 'Dutch sandwichl is a cracker. 

His cousin was the finance minister and his mother was the President of Ireland. He's having a ball.

O’Rourke and other accountants like him “think up these tax strategies and the impact is tens of billions in lost tax revenue in Europe, the U.S. and less-developed countries,” said Jim Stewart, an associate professor of finance at Trinity College’s school of business in Dublin. “He’s a very aggressive leader of the tax-avoidance industry here.”

O’Rourke often speaks loudly and excitedly, gesturing with his hands, yet is careful not to let disagreements turn into arguments. He said the finger-pointing at Ireland and at his profession is misdirected, and politicians around the world complaining about tax avoidance have only themselves to blame.

“Why should Ireland be the policeman for the U.S.?” he asks. “They can change the law” -- he snaps his fingers -- “like that! I could draft a bill for them in an hour.”

8. Mutant Ninja Companies - Here's The Economist with a fascinating look at the changing structure of American companies towards Master Limited Partnerships (MLPs). Sociopathic would be one description.

The new popularity of the MLP is part of a larger shift in the way businesses structure themselves that is changing how American capitalism works. The essence is a move towards types of firm which retain very little of their earnings: “pass-through” companies which every year pay out more or less as much as they take in. Many of the standard rules that corporations which retain their earnings have to follow when dealing with shareholders do not apply to such firms. And, crucially, so long as they distribute their earnings such set-ups can largely avoid corporate tax.

9. Sweet with a bitter aftertaste - Here's a Credit Suisse (!!) video about the problems with sugar and the potential for taxing it. And here's the full PDF report to go with it.

Sugar may be sweet, but excess consumption leaves a bitter aftertaste: millions of people worldwide are affected by type II diabetes or obesity, costing the global healthcare system billions of dollars every year. As the Credit Suisse Research Institute's 2013 study "Sugar: Consumption at a Crossroad" found, close to 90 percent of general practitioners in the US, Europe and Asia believe excess sugar consumption is linked to the sharp growth in these health problems.

10. Totally Jon Stewart on why everyone hates America.