Thursday's Top 10 with NZ Mint: Why an FTA with a dying empire is a mistake; Parallel imports threat; 'Just in time' becomes 'wait and see'; US food price inflation; Dilbert

Here's my Top 10 links from around the Internet at 10 to 9 pm in association with NZ Mint.

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

I'll pop the extras into the comment stream.

I'm travelling today and am having real internet speed problems so apologies for not many videos.

1. 'There's no point' - Canterbury University economist Eric Crampton writes at PileusBlog.com about why we should cut America out of the Trans Pacific Partnership.

The Americans will never let us in to sell more dairy products and then they'll use the deal to try to shut us out even more.

We'd also get restrictions on copyright and Intellectual property.

That includes controls over our Internet Service Providers and a neutering of Pharmac.

America is a dying empire run by a corporate plutocracy that hopes it can keep the masses under their thumbs through Fox News and food stamps.

It's only a matter of time before it collapses in a debt default.

We should gently and quietly disassociate ourselves from the Americans.

Remember less than 60 years ago Britain was our major trading partner. Now Australia, China, Korea and Japan are much more important. Our foreign policy should be allied with the Australians and East Asia, not across the Pacific or Atlantic.

Here's Crampton.

Is it better to have a serious free trade deal among a smaller set of countries, or a weaker deal that brings in the States?

I’d put decent money that, if America signs onto the deal, there’d be years of costly arbitration before New Zealand had any kind of increased access to American dairy markets. For starters, American dairy farmers would argue that failure of the New Zealand competition authorities to prosecute New Zealand dairy cooperative Fonterra as a monopoly constituted a subsidy under US law and justified counterveiling duties.

Never mind that Fonterra has to rely on farmers voluntarily choosing to supply it with milk rather than supply one of its competitors, and that it’s legally required to supply some of its milk to some of its competitors, while the US dairy compacts and market orders are state-enforced cartels that do everything but shoot potential competitors. If the United States was happy to continue trade action against imports of Canadian softwood in the midst of Hurricane Katrina rebuilding, despite NAFTA, why ought we expect any better for New Zealand dairy?

In exchange for the illusion of access to American dairy markets, we’d likely get some pretty restrictive copyright and intellectual property rules.

2. 'It's extreme' - Auckland intellectual property lawyer Rick Shera has written a long detailed post here at Public Address about the extreme position America is taking on copyright protection in its initial talks on the Trans Pacific Partnership.

Parallel imports would go. The 3 strikes and you're out policy for downloading would be back. Prison terms for downloaders would be introduced.

Here's Shera.

The galling thing about all of this too is that we have been debating these issues for many years in a rational, multistakeholder, consultative manner not in the secretive manner in which TPPA is being railroaded through. In the copyright arena for example, we started to look at how our law should deal with digital creativity 10 years ago with MED’s publication of two comprehensive papers on IP in the digital age. 

Since then we’ve debated specific proposals in various legislation – Patents Act, Trade Marks Act, Copyright Act, plant varieties etc – they’ve all been revised to take account of these issues.  Parliament and successive Governments have repeatedly approved the fine balances that we have arrived at. This would run a coach and horses through much of that but at least our officials are not having a bar of it (PDF). They need our support.

3. 'Just break 'em up' - GFS News reports the chairman of Britain's financial watchdog wants to break up the 'Too Big To Fail' banks. Fair enough. Here's his thinking.

The chairman of the UK's financial watchdog has waded into the tense debate on the UK banking system, accusing banks of "tax avoidance and regulatory arbitrage".

Lord Adair Turner said on Wednesday night that consequently an independent review of the structure of British banks should not exclude breakups.  As he queried the internal structures of cross-border institutions, the Financial Services Authority boss said breakups may not be a "panacea", but "certainly should not be excluded".

In his speech to the Cass Business School in London, Turner also said that systemically important financial institutions should face an equity surcharge in lieu of "ideal" higher capital standards.

4. The American Dream - This 30 minute animated video is an example of the online revolt brewing in America against what the US Federal Reserve is doing.

I love how it now has Greek subtitles...HT Ian via email.

5. Useful resource to follow the Japanese crisis - Here is Reuters' blog on the earthquake. It's a great resource.

6. 'Just in time' becomes 'wait and see' - The New York Times has a useful piece looking at the knock-on affects of Japanese factory and distribution closures on global production systems.

Much of Japan’s industry seemed to remain in a state of suspension Wednesday, as the devastation from an earthquake and tsunami, combined with fear and uncertainty over the nuclear calamity, made it difficult for corporate Japan to think about business as usual.

And that has left many overseas customers and trading partners in something of an information vacuum, unsure how soon the effects of any supply-chain disruptions would make themselves felt — and how long they might last.

Even General Motors, a company that might seem to benefit from disruptions to Japan’s auto industry, finds itself in a period of watchful waiting. For one thing, the new Chevrolet Volt plug-in-hybrid from G.M. — whose sales could conceivably benefit from any production snags in Toyota’s popular made-in-Japan Prius — depends on a transmission from Japan.

7. Knowns and unknowns - Satyajit Das is an astute and sceptical observer of global financial markets. He wrote an excellent book called. 'Traders and Guns and Money: Knowns and unknowns in the Dazzling world of derivatives." Here he writes at Naked Capitalism about the impact of the Sendai earthquake and Tsunami.

He makes some interesting points. Insurance coverage may be less than 25%. Japan's tax revenues cover less than 50% of spending at the moment. Debt is 20 times revenues.

The Japanese banks have in the past been major funders of Australian bank debt...

The level of insurance cover is limited. In the case of Kobe, only 3% of property was insured. The level of coverage in the current disaster is estimated at around 15-25%. The rest will have to be financed by governments and individuals drawing on savings.

The government could finance the reconstruction from existing emergency reserves or cuts in other spending. Alternatively the government could pay for rebuilding by raising money through the sale of bonds.

Financial market have assumed that Japan will instead sell its overseas financial investments including US government bonds (holding of around US$900 billion) to finance reconstruction.

Japan currently has net foreign assets worth 57% of its GDP, against net foreign assets of 16% in 1995 at the time of Kobe. If such liquidation and repatriation occurs, then the volumes may be larger than 1995.

The ‘repatriation thesis’ sees US interest rates rising as the Japanese sell US$ bonds and the Yen increasing in value as the dollars are converted into local currency.

But it is not clear that this actually happened following the Kobe earthquake. Currently, there are no signs that the government, insurance companies or private investors are selling or plan to sell foreign assets to finance the rebuilding. Investors are acting on the anticipation of anticipation of events.

There are a number of reasons to believe that the repatriation thesis is speculative. Investors will be reluctant to sell foreign investments as they typically provide higher returns than Japanese assets. The government may prefer domestic financing, to avoid an increase in the value of the Yen, to maintain Japanese export competitiveness. As this was already a concern before the disaster, the imperative to avoid any increase in the value of the Yen will be significant.

8. The problem with LIBOR - Reuters reports Bank of America, Citigroup and Barclays are being investigated over whether they tried to manipulate the London Interbank Offer Rate (LIBOR), which is the key basis for many business interest rates globally.

9. US food prices explode - Further to the 'let them eat iPads' meme from yesterday, Zerohedge points out some ominous inflation figures out of America. They rose last month by the most since 1974.

Anytime an ecostat comes in at the 4th highest reading in its 64 year history, it’s worth taking note. 

As shown in the chart below, the finished consumer foods component of the Producer Price Index jumped 3.9% in February alone.  But not to worry.  The core PPI only rose 0.2% in the month and ‘inflation expectations [among blue chip economists] remain subdued’.  Paging Mr. Dudley…

10, Totally the only video I could find while working on a dailup connection in third world Sydney. John Key and Phil Goff want the All Blacks to wear red ferns rather than silver ferns.

Sorry. Tomorrow. May have to visit Starbucks. Shudder.