Friday's Top 10 at 10 with NZ Mint: Why food prices are rising; Should the US sell its gold?; What the ECB meant; World population to hit 10 bln; Why headline inflation matters; Clarke and Dawe; Dilbert

Here's my Top 10 links from around the Internet at 1 pm  in association with NZ Mint.

I'll pop the extras into the comment stream. See all previous Top 10s here.

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

Clarke and Dawe is a cracker today.

1. Why food prices are rising - Some people blame speculators for higher food prices. But there are some fundamentals driving this.

Peak oil output, population growth and China's industrialisation are all factors.

But there's also a problem with sliding productivity growth in terms of output growth per hectare of crops such as wheat, soy and rice.

This, in theory is good news for New Zealand's farmers, who are less reliant on grain output.

Thank goodness for grass, although we're not increasing output much there either.

But I have given up on toast as a food after reading this. Meat and dairy for me.

Here US resource economist Michael Roberts at his blog GreenGreenGrains picks out some stats from a recent FAO report.

The chart below tells the story too.

Recent data from FAO shows a pretty rapid slowdown in productivity growth.  The price spike in 2008 occurred in a particularly bad year in which yields declined on a worldwide basis for three of the four largest food commodities.  In 2009 all four of the majors saw yield declines, something that hasn't happened since 1974. 

2010 couldn't have been much better and was probably worse, given how bad things were in the U.S, the world's largest producer and exporter.

One question came up about planted area diluting yields through expansion onto marginal lands.  There might be some of that.  But I think it's mainly a combination of weather and slowing technological progress in breeding.  Cutbacks on basic science research do have consequences.  And so does climate change, even if it hasn't affected the US, yet.

2. Britain's biggest slump since Lehman -  Philip Aldrick reports at the Telegraph that Britain's economy has just suffered its biggest loss of momentum since the Lehman Bros crisis of 2008.

Together with weak PMIs on manufacturing and construction earlier this week, the services sector survey indicated "the largest loss of growth momentum seen since just after the collapse of Lehmans" in September 2008, said Chris Williamson, Markit's chief economist. He added that the PMI data signalled that GDP was expanding at a quarterly rate of just 0.4pc.

The weak PMI data has forced economists to push back their expectations of a rate rise to the end of the year. Many are now expecting them to be left unchanged until early next year, and the market is factoring in just one rate rise in 2011 - in December. Just two months ago, the markets believed there was a nine-in-10 chance that rates would have been lifted on Thursday.

3. The lobbyists are earning their money - Reuters reports Goldman Sachs is working hard to water down the Volcker Rule, which was designed to seperate the commercial banks from the investment banks and stop the Too Big To Fail banks from using their government guarantees to gamble and make big bonuses for bankers while offloading the risk to taxpayers.

High return on investment from lobbyists these days.

The Volcker rule was one of the main topics on the agenda when Chief Executive Lloyd Blankfein met recently with U.S. Securities and Exchange Commission Chairman Mary Schapiro. Wall Street chiefs do not often lobby top regulators directly, but this issue is unusually important to Goldman.

"They're totally freaked out about Volcker," said a Goldman lobbyist who declined to speak on the record for fear of losing the contract. "People are working on that a lot, with agency staff, with lawmakers, you name it."

Indeed, lobbying disclosures show Goldman representatives have been working both sides of the political aisle and meeting with top officials in the White House and regulatory agencies.

4. 'Just sell the gold' - As the countdown starts to America defaulting on its debt from August 2 if its debt ceiling isn't raised by Congress, some are wondering what the US government could do to avoid default.

Felix Salmon from Reuters has a suggestion:

Among the resources to be exhausted is a whopping US$400 billion in gold reserves — that’s the current value of the government’s store of 261 million ounces of gold. Selling at these prices seems like quite a good idea to me: I can’t think of any particularly good reason why the government should be storing $3,500 of gold for every household in the country.

5. Not so fast - PW at The Economist decodes the ECB's statement overnight, which seemed to trigger such global financial volatility.

Working that out is an exercise in deciphering various code words used by Jean-Claude Trichet, president of the ECB. "Vigilance" signals an early move, "strong vigilance"—used in March—makes it all but certain the ensuing month. Describing the current stance of monetary policy as "very accommodative" suggests that a rate increase may be on its way before too long. Instead Mr Trichet chose to describe policy merely as "accommodative".

What this suggests is that a follow-up rise in June is now unlikely and that one in July may be less certain than previously anticipated. There are two reasons why the ECB might wish to raise rates only gradually: the strength of the euro and the troubles of peripheral economies like Greece, Ireland and Portugal whose sovereign-debt woes have required bail-outs.

6. The Credit Impulse - Australian economist Steve Keen comments on this week's slump in Australian house prices.

The fact that the Credit Impulse leads changes in house prices also gives some indication of where future prices are likely to go. The mortgage Credit Impulse shown below is for the acceleration in mortgage debt over a year: the change in the change in mortgage debt compared to the previous year.

With the mortgage credit impulse still headed south, and leading falls in house prices by 3-6 months, that implies that there are at least two more quarters of negative house price movements coming up.

7. The population impulse - The New York Times reports on a UN report out this week forecasting the global population will hit 10 billion by 2100 from 7 billion now.

Previous assumptions were that the world's population would stabilise around 2050. African growth is the difference.

Oil and food price picks anyone?

Growth in Africa remains so high that the population there could more than triple in this century, rising from today’s one billion to 3.6 billion, the report said — a sobering forecast for a continent already struggling to provide food and water for its people.

The new report comes just ahead of a demographic milestone, with the world population expected to pass 7 billion in late October, only a dozen years after it surpassed 6 billion. Demographers called the new projections a reminder that a problem that helped define global politics in the 20th century, the population explosion, is far from solved in the 21st.

“Every billion more people makes life more difficult for everybody — it’s as simple as that,” said John Bongaarts, a demographer at the Population Council, a research group in New York. “Is it the end of the world? No. Can we feed 10 billion people? Probably. But we obviously would be better off with a smaller population.”

8. Pay attention to the headline - Economist Heleen Mees writes at VoxEu that headline inflation is more important than many central bankers think.

For much of the 20th century, core inflation has been both less volatile and more persistent than the inflation rate of non-core goods. However, the integration of China and India in the global market added more than 2.3 billion consumers and producers to the global economy. They entered as suppliers of core goods and services and as demanders of non-core commodities. The result has been a major, persistent, and continuing increase in the relative price of non-core goods to core goods.

Even if the current spike in headline inflation proves to be transitory, past experience suggests that it may well lead to a permanent increase in real hourly wages. Unless monetary policymakers in the US favour feverish boom-and-bust cycles with prolonged periods of high unemployment, they had better start paying close attention to headline inflation, like their counterparts at the ECB do.

9. Clarke and Dawe - Oliver Beerthanks discusses the death of Osama bin Laden. Experts is his favourite author. Funny as hell.

10. Totally irrelevant video of electric race bikes on the Isle of Mann. Ewan Macgregor narrates.

We all need to get ready for peak oil in our own way. HT Lance Wiggs via twitter.