Thursday's Top 10 with NZ Mint: 'Ignore the bond vigilantes and stimulate'; WTF were they thinking?; 'Tax the rich before the youth revolt'; How Marx was right; Dilbert

Here's my Top 10 links from around the Internet at 2 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. See all previous Top 10s here.

Jon Stewart is back at number 10. Yay!

1. Ignore the wailings of the bond vigilantes - Martin Wolf writes at FT.com that bond markets are saying they are not worried about too much government borrowing in America, Germany, the UK and Japan because they keep pushing bond yields down.

The nervousness of politicians about being beaten up by bond vigilantes is just that, he says.

Nerves.

He says the big governments need to borrow a lot more to stimulate a lot more.

Hmmm. I wonder if there aren't some structural issues around capital imbalances between China/Germany and America/Southern Europe that need to be fixed first.

And I wonder if something is broken inside the system of multi-national corporatism that means the fruits of these stimulii simply get shuffled quickly to hoarded holdings of gold and bonds rather than spent by middle classes. All the stimulii seem to have done so far is protect bankers, shareholders and bondholders.

Anyway. Wolf makes his case to turn the taps on full:

Contrary to conventional wisdom, fiscal policy is not exhausted. This is what Christine Lagarde, new managing director of the International Monetary Fund, argued at the Jackson Hole monetary conference last month. The need is to combine borrowing of cheap funds now with credible curbs on spending in the longer term. The need is no less for surplus countries with the ability to expand demand to do so.

It is becoming ever clearer that the developed world is making Japan’s mistake of premature retrenchment during a balance-sheet depression, but on a more dangerous – far more global – scale. Conventional wisdom is that fiscal retrenchment will lead to resurgent investment and growth. An alternative wisdom is that suffering is good. The former is foolish. The latter is immoral.

Reconsidering fiscal policy is not all that is needed. Monetary policy still has an important role. So, too, do supply-side reforms, particularly changes in taxation that promote investment. So, not least, does global rebalancing. Yet now, in a world of excess saving, the last thing we need is for creditworthy governments to slash their borrowings. Markets are loudly saying exactly this. So listen.

2. 'Tax the rich' - Paul Farrell at MarketWatch says Tax the Rich or riots will rage in 2012. This meme is going mainstream now.

Across our planet a new generation is filled with rage. High unemployment. Raging inflation. Dreams lost. Hope gone. While the super -rich get richer and richer.

Listen to that hissing: The fuse is rapidly burning, warning us. Wake up before the rage explodes in your face. This firestorm is endangering America’s future. From forces outside, yes. But far more deadly, from deep within our collective psyche. We have lost our moral compass. We are self-destructing.

This warning comes from the elite International Monetary Fund. A recent IMF report looked at “the causes of the two major U.S. economic crises over the past 100 years, the Great Depression of 1929 and the Great Recession of 2007,” writes Rana Foroohar, an economics editor at Time magazine. 

“There are two remarkable similarities in the eras that preceded these crises. Both saw a sharp increase in income inequality and household-debt-to-income ratios.” And in each case, “as the poor and middle-class were squeezed, they tried to cope by borrowing to maintain their standard of living.”

But the rich “got richer, by lending, and looked for more places to invest, bidding up securities that eventually exploded in everyone’s face. In both eras, financial deregulation and loose monetary policies played roles in creating the bubble. But inequality itself — and the political pressure not to reverse it, but to hide it — was a crucial factor in the meltdown. The shrinking middle isn’t a symptom of the downturn. It’s the source of it.”

3. Population growth  - The World Economic Forum has a useful discussion on the issues around UN projections that the global population will grow from around 7 billion now to around 10 billion by 2100.

But this chart startled me most.

4. WTF were they thinking - The NZHerald reports how 67 investors gave NZ$6 million to a Hamilton man who promised returns of 28-32% by investing in stocks...

Now what could possibly go wrong? Now it seems the amazing Tony Lusby, who scarpered to Panama (!) wants a second chance....sigh...and he thinks he can trade his way out of it.

Why is it these characters always think things will be better on the next roll of the dice? Yet they are often believed.

It reminds me of all those moratorium meetings that finance company investor trundled along to in late 2008 where they all drank their tea and biscuits and voted to give their CEOs another chance to 'trade their way  out'.

Here's Lusby.

"If I was given the opportunity to trade out of it, I'd prefer to do it. There's a possibility I'm getting jail time for this when I come and face it in New Zealand.

"It wasn't intentional ... Some of the fund were misappropriated and I made some bad business decisions."

5. It's started - The NZHerald's Greg Ansley reports Woolworths Coles Myer has stopped buying New Zealand cheese for its house brand cheese in Australia. The rhetoric in Australia is becoming increasingly strident about protecting their own jobs. Selfish buggers. They've always been less enthusiastic about free trade than us. The Apple saga is just one of many.

Woolworths says it has adopted an 'Australian first' strategy. No shame or compunction. They've just done it.

So should we adopt a New Zealand First strategy? Should we stop shopping at Woolworths' Countdown Coles' K-Mart stores in New Zealand? Should we stop buying Australian made cheeses?

Part of Fonterra's response has been to buy Australian milk processors.

Here's Woolies' Coles' logic in Australia:

Coles merchandise director John Durkan said the chain had sought a partnership that sourced all its house brand cheese from within Australia.

Bega Cheese chief executive Aidan Coleman said that the contract would inject an extra A$30 million ($38.4 million) directly into the Australian dairy industry.

6. It's only just started - David Wessel from the WSJ points to these charts showing the deleveraging in America has only just begun.

7.' Let's celebrate Karl Marx' - Former FT journalist Tom Foremski writes in this response to a Umair Haque blog post below that we all need to take a fresh look at Marx's analysis of the flaws in capitalism and look past all the dumb and evil things done in Marx's name after his death.

Fair enough. Here's Foremski:

This discussion is about Marx's analysis of capitalism, not about communism. He sat in the British Library for decades, studying very dry, economic reports, he was trying to understand basic underlying mechanisms of capitalism.  He discovered how capitalism naturally moves through boom and bust cycles; how it is perpetually in crisis; how value is created by labor; how some capital must be destroyed to restore profit margins; how unemployment levels are used to control the price of labor; and so much more.

It is a description of a vast, complex system, it has nothing to do with communism or opinion, just as observing how gravity works and describing its laws has nothing to do with being on the left or the right.That's Mr Haque's focus in this article  - not a discussion of communism.

Marx managed to uncover, describe, and catalog fundamental characteristics of capitalism at a time when capitalism was still very young. That work is about trying to understand the nature of capitalism.

It's time to look at Marx with fresh eyes. I highly recommend Francis Wheen's superb biography, where he makes a very strong case for a reexamination of his work.What bothers me hugely is that our economists and politicians are continually surprised by economic busts and try to avoid or mitigate them yet they are a fundamental characteristic of capitalism  -- they point fingers of blame and responsibility as if the busts can be avoided. They can't. 

If you have a planned (communist) economy you might be able to avoid busts but not in a capitalist economy.

It's high time to rediscover, and celebrate, Marx's analysis of capitalism and recognize its fundamental cycles and integrate them into government plans so that we aren't continually surprised by events that are natural to our economic system. That's not Marxism, or communism, it's just plain common sense.

8. Marx was (partly) right - And here's the original Umair Haque post on re-evaluating Marx:

Marx claimed that capitalism would immiserate workers: he meant that labor would be "exploited" — not just in a purely ethical sense, but in a narrower economic one: that real wages would fall, and working conditions would deteriorate. How was Marx doing on this score? I'd say middlingly: wages in many advanced economies — notably, the most purely capitalist in a financialized sense — have failed to keep pace with productivity; not for years, but for decades. (America's median wage has been stagnant for roughly 40 years.) In macro terms, labor's share of income has plummeted, while the lion's share of growth has accrued to those at the very top.

As workers were paid less and less, capitalism would be prone to chronic, perpetual crises of overproduction — for they wouldn't have the means to purchase or invest in enough goods to keep the economy humming. As Marx put it, there was likely to be "poverty in the midst of plenty." How's Marx doing on this score? Not bad, I'd say: the last three decades have in fact been characterized by global crises of what you might crudely call overproduction (think: too little demand chasing too many disposable widgets, resulting in a massive global debt crisis, as vanishing middle classes took on more and more debt to compensate for stagnant real wages).

9. Downward mobility - The Washington Post cites a Pew Charitable Trusts study showing out 1 in 3 Middle Class Americans have slipped down into the under classes over the last 10 years or so.

Downward mobility is most common among middle-class people who are divorced or separated from their spouses, did not attend college, scored poorly on standardized tests, or used hard drugs, the report says.

10. Totally Jon Stewart is back from his summer holiday. Phew!