Friday's Top 10 with NZ Mint: Winston Churchill's land tax; Morgan Stanley's 'nuclear holocaust' bonds; 5 years of 'Brexit' uncertainty; Jon Stewart's 'Global Warming hoax'; China's corrupt Hukou system; Dilbert

Here's my Top 10 links from around the Internet at 9.30 am in association with NZ Mint.

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 #4 on China's Hukou system and how its leaders corrupt it for their own ends. This is the sort of thing that triggers unrest.

1. Why no capital gains, financial transaction or land taxes? - The Guardian's George Monbiot asks this question in Britain. The same question could be asked here.

Monbiot quotes a surprising advocate for a land tax: Winston Churchill.

We've seen income tax cuts for the wealthiest and for companies.

Has it worked to boost growth? No.

The money has instead been piled up and invested in government bonds, which have become increasingly valuable as interest rates have fallen.

And the major political push is to reduce government deficits, which would make those bonds even more valuable...

Hang on a minute. Who is the winner here?

Here's Monbiot on land taxes:

In 1909 a dangerous subversive explained the issue thus. "Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements is effected by the labour and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived ... the unearned increment on the land is reaped by the land monopolist in exact proportion, not to the service, but to the disservice done."

Who was this firebrand? Winston Churchill. As Churchill, Adam Smith and many others have pointed out, those who own the land skim wealth from everyone else, without exertion or enterprise. They "levy a toll upon all other forms of wealth and every form of industry". A land value tax would recoup this toll.

2. As if we needed more proof - ProPublica's Jesse Eisinger reports on a 2007 deal marketed by Morgan Stanley to investors where they knew the assets they were selling were toxic.

No US banking executives have been held accountable for selling this dreck.

On March 16, 2007, Morgan Stanley employees working on one of the toxic assets that helped blow up the world economy discussed what to name it. Among the team members' suggestions: "Subprime Meltdown," "Hitman," "Nuclear Holocaust," "Mike Tyson's Punchout," and the simple-yet-direct: "Shitbag."

Ha ha. Those hilarious investment bankers. Then they gave it its real name and sold it to a Chinese bank.

We are never going to have a full understanding of what bad behavior bankers conducted in the years leading up to the financial crisis. The Justice Department and the Securities and Exchange Commission have failed to hold big wrongdoers to account.

We are left with what scraps we can get from those private lawsuits lucky enough to get over the high hurdles for document discovery. A case brought in the New York State Supreme Court in Manhattan against Morgan Stanley by a Taiwanese bank, which bought a piece of the same deal the Chinese bank did, has cleared that bar.

The results are explosive. Hundreds of pages of internal Morgan Stanley documents, released publicly last week, shed much new light on what bankers knew at the height of the housing bubble and what they did with that secret knowledge.

3. Five years of uncertainty ahead of 'Brexit' - Reuters' Hugo Dixon explains what British Prime Minister David Cameron's pledge to hold an 'in-out' referendum on Britain's membership of the European Union means for the economy.

Cameron may come to regret this long period of limbo-land. Businesses from Britain and overseas will be reluctant to invest so long as there is uncertainty over the UK’s membership of the EU which accounts for half its trade. Less investment could, in turn, make it harder for the economy to pull out of what could be a triple-dip recession. There’s even a tail risk that financial markets might now look at Britain’s still-high deficit more critically and push up gilt yields.

The long-term risk of a “Brexit” has also gone up. Cameron says he would campaign with heart and soul to stay in the EU if he can renegotiate Britain’s relationship in the way that he wants. But he may not succeed in such a negotiation. And, even if he does, the British people may still vote to pull out of the EU – especially since the referendum would be held in the middle of the next parliament, a time when incumbent governments are typically unpopular.

4. China's Hukou system - This residential registration system is a key way people's movements and benefits are controlled in China. Its now right at the heart of Xi JingPing's anti-corruption drive. OffbeatChina has a useful explanation and hints at how this could make a lot of people very grumpy.

It turns out the rich and connected can have more than one hukou card, which allows them to buy multiple properties...

Hukou, as a household registration record, officially identifies a person as a resident of an area using identifying information such as name, date of birth and family relations. Theoretically, one individual can only have one hukou record as a unique identifier, just like one can only have one SSN number in the US. But two recent news about corrupt officials and their family members challenged that assumption.

“Younger House Sister,” a post-90s generation girl who has a Shanghai hukou, was found to own 11 apartments under an affordable housing project in Zhengzhou, Henan province. Her father Qu Zhenfeng was found to be the former director of Zhengzhou State Housing Bureau. All 4 family members of Qu have 2 hukou. Registered under the family’s different hukou are a total of 29 houses.

Gong Aiai, who has been dubbed by netizens as the “Older House Sister,” is the vice  president of Rural Commercial Bank in Shenmu County, Yulin City, Shaanxi province, and also a delegate of China’s National Congress. This county-level cadre was found to own over 20 apartments in Beijing with a total value exceeding 1 billion RMB. And the highlight of the scandal is that she has 4 hukou, 3 in Shaanxi province and 1 in Beijing.

5. Storing up problems for the future - Jeremy Warner from the Telegraph is at the World Economic Forum talkfest of the rich and famous at Davos. He writes well here about the basic problems that haven't been solved.

Although central banks can certainly buy time for debt deleveraging and economic adjustment, they cannot solve underlying deficiencies in competitiveness and solvency. Countries that put their faith in easy money alone are only storing up new, and possibly worse crises for the future.

Belatedly, central banks seem to be waking up to the dangers. Already, it has become a major talking point here at the World Economic Forum in Davos, with some strongly worded warnings from Axel Weber, former head of the German Bundesbank. Central banks and governments are heading into a very dangerous environment, he said, by trying to solve a problem of too much leverage with even more leverage.

Many advanced economies are continuing to live at the expense of future generations, while all central banks have achieved by flooding the world with liquidity is to push underlying problems further down the road. “We are trying to keep a speed for our economies which is simply unsustainable,” he said. Quite so.

6. Would currency wars create deflation? - Nicholas Wapshott writes at Reuters about the danger that tit-for-tat currency devaluations would create deflation. This seemed counter-intuitive to me, given devaluations usually involve printing money.

He also makes some good points about how QE has robbed bond vigilantes of their gun sights.

There are indications that the early skirmishes of a currency war have begun. This is a dangerous business. If countries undercut their competitors’ prices by devaluing their currencies, the stability of the world economy is put at risk. A full-fledged currency war invites deflation, a ruinous downward spiral of prices that in turn invites a worldwide recession. The cause of the conflict lies in the failure of the chosen measure to offset a Great Recession since 2008: wave after wave of “quantitative easing” (QE) by central banks to beat stagnant growth. QE was intended to funnel cheap money into national economies to boost economic activity and increase aggregate demand, thereby creating growth and jobs. But persistent QE has had an important unintended consequence. It has removed a key measure by which traders judge sovereign interest, or the ability of a country to pay its way.

Before the financial freeze of 2008-9, traders who worried about a country’s solvency would decline to buy government bonds or insist on a punishingly high return. That mechanism became confused when, to head off a precipitous Great Recession, finance ministers from the leading industrial nations agreed to pump vast amounts of newly minted money into their economies until the danger had passed. QE, or the buying of government bonds by central banks, was intended to reduce general borrowing costs and allow businesses to borrow cheaply to invest, and thereby employ the jobless.

That did not happen. Banks — fearful of making imprudent decisions similar to the ones they made on mortgage lending that plunged the world economy into a slump in the first place — have been hoarding money, have bought other banks with it, or have awarded it as bonuses to their executives. Businesses, fearful of making large investment decisions so long as demand remains sluggish, have also sat on their cash reserves. The result is the low- to no-growth economy we are currently enduring. John Maynard Keynes thought this would happen. As he told Franklin Roosevelt, it is “like trying to get fat by buying a larger belt.” Providing endless supplies of cheap money cannot in itself lead to growth. Measures to promote demand can best do that.

7. 'This is no currency war' - Felix Salmon, also at Reuters, writes the Japanese money printing move is just normal monetary policy and the yen's move reflects economic expectations, not the first salvo in a currency war.

I’m sure that the Japanese government is happy about the weakening yen. But these are not the opening salvos in some new currency war: instead, the yen should be getting cheaper, just because the Japanese central bank should be doing everything in its power to increase inflation expectations and nominal GDP growth. This move is what you’d expect if the yen moved in line with the kind of monetary policy that makes sense.

And as for central bank independence — well, that battle was lost during the financial crisis, I’m afraid. When it comes to globally coordinated policy actions, central banks should not be independent, and in general the more independent they are, the less effective they have been. Nominal independence is a good thing: we don’t want the finance minister announcing interest rate moves, as used to happen in the UK until about 15 years ago. Central bankers are like judges: they should be technocrats, rather than politicians.

But the fact is that the last genuinely independent central banker was Alan Greenspan, who blew two enormous bubbles and was in many ways the prime cause of the global financial crisis — mostly by being far too laissez-faire, and keeping interest rates far too low for far too long. Central bank independence gave him the kind of credibility that he’d never have had if the president had been setting the exact same monetary policy, more’s the pity.

8. Japan's ageing economy is a hint of things to come - So says Edward Hadas in this thoughtful piece at Reuters about the economic and political effects of ageing societies.

In Japan and many Western countries, giant pension funds have been built on the economic fiction that societies can pay pensions out of savings. In fact, the income of the elderly always comes out of current production. Supposed pension savings have already helped distort bond markets and government finances – pension fund purchases of Japan’s government debt have contributed to some of the lowest yields in the world, funding fiscal deficits which are among the world’s highest as a share of GDP. The time will come when there will be fewer young savers to buy bonds than old pensioners who wish to sell them. At that point, the distortions would reverse: yields rise sharply, provoking a massive financial crisis.

In prosperous, ageing and shrinking nations there are too many voters who are well established and afraid to take risks, too few who are young and adventuresome, or have young children whose interests they wish to advance. I believe that ageing has already made Japanese politics more arthritic. Only in a rigid political environment could the plan of Japanese Prime Minister Shinzo Abe to move from basically flat prices to a 2 percent inflation rate be considered radical. Europe is similar. Progress on such ambitious projects as the euro and banking union would be much faster if there were more young Europeans and fewer old Germans and Italians.

The Japanese experiment with small families has lasted long enough to suggest that a low birth rate neither enriches nor impoverishes but does encourage financial fragility and political calcification. The negative effects should be enough to discourage even enthusiasts for fertility control and negative population growth. While individuals may like the freedom and the environment may be less stressed, demographic decline could prove impoverishing for society as a whole.

9. Ashton Kutcher is Steve Jobs? - Apparently he is in the movie. Here's the first footage of Ashton and Josh Gad plays Woz. Steve wants to change the world. Woz is not so sure.

10. Totally Jon Stewart on the Global Warming Hoax and the coming Ice Age where he lives.