Thursday's Top 10 with NZ Mint: Europe's strategy requires exports to Mars; The heartbreaking detail of China's one child policy; America's bee population slumps; How to kill Zombie banks; Dilbert

Here's my Top 10 links from around the Internet at 10 am today 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 is #4 on China's one child policy. The details are heartbreaking. 

1.  The problem with Europe - Martin Wolf at the FT has written an excellent summary of the problem in Europe.

Germany is trying to impose its economic model on the rest of Europe.

The problem is not everyone can grow their economies by forcing real wage deflation and exporting their way out of trouble.

That only works when someone else is willing to borrow to consume the surplus exports.

That worked for Germany during the 2000s because either America was consuming the surplus or Southern Europe.

Now Southern Europe has no capacity to borrow to keep consuming the surplus and America is trying its own devaluation and exporting trick. Not to mention China is trying to do the same thing, and has to because of its virtual peg to the US dollar. This is the real reason we should care. When Europe stops importing Chinese stuff, then China has a problem, which means we have a problem.

Any New Zealanders hoping to export to Europe (or attract European tourists) will really, really struggle under the weight of Europe's slow-motion economic trainwreck.

When everyone is trying to export their way back to balance through internal devaluations the strategy doesn't work. It would require Mars to start importing the surpluses. Hence the massive deflationary and recessionary forces sweeping Europe in particular, and much of the rest of the developed world.

Here's Wolf:

The eurozone is not a small and open economy, but the second-largest in the world. It is too big and the external competitiveness of its weaker countries too frail to make big shifts in the external accounts a workable post-crisis strategy for economic adjustment and growth. The eurozone cannot hope to build a solid recovery on this, as Germany did in the buoyant 2000s. Once this is understood, the internal political pressures for a change in approach will surely become overwhelming.

Europe will not become a bigger Germany. It is foolish to believe it ever could. The eurozone will either achieve a better-balanced resolution of its difficulties or break up. Which of the two will it be? That remains the big unanswered question.

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2. How will the 15% be policed? - The government's allocation of 13.5% of the Mighty River Shares to foreign funds leaves it with a problem. How will it police its self-imposed 15% limit on foreign ownership? 

The first thing that will happen tomorrow morning is that yield-starved foreign funds, who would have bought all 49% of the shares if they could have, will rush in to buy off local investors.

I was surprised that so much was allocated overseas. Why was there any scaling down at all of retail investors? Why did local funds get so little?

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3. Ending stimulus has never been a problem - Paul Krugman writes here about the worries many have about governments being unable to stop stimulating once they start. He makes the partisan, but true, point that Republicans are the worst offenders as serial stimulants.

There is, I believe, a further obstacle to change: widespread, deep-seated cynicism about the ability of democratic governments, once engaged in stimulus, to change course in the future.

So now seems like a good time to point out that this cynicism, which sounds realistic and worldly-wise, is actually sheer fantasy. Ending stimulus has never been a problem - in fact, the historical record shows that it almost always ends too soon. And in America, at least, we have a pretty good record for behaving in a fiscally responsible fashion, with one exception - namely, the fiscal irresponsibility that prevails when, and only when, hard-line conservatives are in power.

There’s a reason for that association: US conservatives have long followed a strategy of “starving the beast,” slashing taxes so as to deprive the government of the revenue it needs to pay for popular programs.

The funny thing is that right now these same hard-line conservatives declare that we must not run deficits in times of economic crisis. Why? Because, they say, politicians won’t do the right thing and pay down the debt in good times. And who are these irresponsible politicians they’re talking about? Why, themselves.

To me, it sounds like a fiscal version of the classic definition of chutzpah - namely, killing your parents, then demanding sympathy because you’re an orphan

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4. What China's one child policy (still) really looks like - This policy is now a driving demographic force in the economic, social and political life of New Zealand's largest trading partner. Yet we know little about it.

Here's an excellent piece from Chinese novellist Ma Jian in The Guardian. Spine chilling stuff. Heartbreaking actually from a purely human point of view. The economics of it are disturbing too, from our point of view.

A man with a motorbike agreed to take me to meet a family who had been persecuted the previous year. "They live in a remote valley, far from the nearest village, so the local officials are unlikely to see us," he said as I climbed on behind him. He drove me through dark green hills, past brick shacks painted with half-defaced slogans, one of which read: "After the first child: insert an IUD; after the second: sterilise; after the third: kill, kill kill!"

When we arrived at the house, Ah-Li was laying out shrivelled, salted vegetables to dry in the sun. She had to care for four children and her husband's elderly parents, and looked much older than her 30 years. When I asked her about the forced abortion she suffered, she flinched.

"It crippled me," she said. "I couldn't stand up straight for weeks afterwards. I had to spend hundreds of yuan on painkillers."

5. The untouchables of the 21st century - Youth unemployment is shaping up as global economic disaster that will live with us and cripple a generation for decades.

Here's automatic earth with some polemic. 

The Eurozone (and probably the EU as a whole and as a mechanism) has nothing left to offer its poorer members but a world of pain. But it's up to the people themselves to make sure they get out in time. And all the countries still have europhiles in power. Italy got close, but it's already back to the days of old with the same old president and a new PM from the same old school. And if leaving half your children with the prospects of being condemned into meaningless lives, of being ostracized as modern day untouchables, is not enough to wake you up and say No Mas, you really need to wonder what is.

Brussels is not going to create jobs for Europe's young people, they're instead going to cut more jobs, they say so themselves. What they intend to do is squeeze the politically relevant - older - part of the population, but only so far. They don't want them to revolt. That leaves only the young to be squeezed more.

Political power in our societies is also defined by age. In that the young have very little of it, and the older have a death grip. That can work, and has worked, as long as - economical - trend lines are positive. It no longer does, however, when these lines break.

Then you don't have one society anymore, but several, starting with older haves and younger have nots. And of course everyone's parents have more than they do, but until now there was the prospect of going out and getting as much as or more than, one's parents have (a better life for my children). That prospect is now gone.

6. High unemployment AND high corporate profits - Here's Joe Stiglitz and Frank Rich explaining this phenomena in America.

7. The problem of temporary work - Here's Canada's Globe and Mail with a piece on the scourge of temporary work for young people.

When are they going to revolt?

Since the recession, temporary work has grown at more than triple the pace than permanent employment – up 14.2 per cent for temp work between 2009 and 2012, versus 3.8 per cent for permanent workers.

A detailed breakdown shows most of the growth in temp work in the past decade and a half has been among young people. Temporary positions are most prevalent in education, culture and the accommodation and food services sector.

“You’re either a winner or loser in this labour market,” said Wayne Lewchuk, professor of labour studies at McMaster University in Hamilton. “The clear winners [are those] with great, stimulating, well-paid jobs. But a lot of others [exist] in a treadmill of insecurity, with little training and a limited career path,” which in turn makes it difficult to maintain relationships, buy houses, engage with the community or get established in life.

8. Europe's Zombie banks - Banking professors Harald Benink and Harry Huizinga write in the FT that Europe needs more credible stress tests to solve the problem of Europe's Zombie banks.

First, a credible stress test should assess the losses hidden on the balance sheet for each bank, as well as the likely cost of the removal of implicit guarantees of all liabilities. This will result in an estimated capital shortage, taking into account capital levels as required by international bank supervisors.

Second, supervisors need to assess whether the capital shortfall can be financed by international capital markets and/or governments. If the required amounts are too high, the bank must be entered immediately into a resolution and restructuring process imposing some losses on unsecured creditors (the Cyprus model). The legal basis for this would be an intervention law, which some countries may need to enact through emergency legislation. Most banks in Europe, unlike their counterparts in Cyprus, have significant financing by bondholders and can be recapitalised by imposing losses on holders of subordinated and common debt without infringing on savings deposits.

Third, in the event that capital shortfalls are relatively small, supervisors could instead implement the US model. This would mean banks being given a limited period of time to issue equity on international capital markets, after which national governments would step in to provide the remainder.

Europe has postponed the recapitalisation of its banking sector far too long. And, without such a recapitalisation, the danger is that economic stagnation will continue for a long period, thereby putting Europe on a course towards Japanese-style inertia and the proliferation of zombie banks.

9. America's bee collapse - Almost third of America's bee population died last winter 

The report is the latest in a serious of mass honey bee deaths reported over the past several years. A decline was first reported by beekeepers in 2006 and is attributed to multiple factors such as parasites, mal-nutrition, disease and parasites. A separate Department of Agriculture study released last week concluded that scientists could find no single cause for bee deaths.

While the declining bee populations might be good news for those who live in fear of stinging insects, it’s actually bad news. After all, bees play a vital role in food production. The loss of honey bees across the country could mean dramatic changes to crops and the work of farmers. Almond farms in California are especially reliant on bee pollination.

The Agriculture Department   estimates that insect-pollination directly contributes $20 billion to the U.S. economy annually. The same study says that if indirect products such as milk and beef, which are created by cows that feed on crops that in turn rely on pollination, were to be included, bees’ economic contribution would rise to $40 billion. The honey yield is also diminishing, with bees producing less honey than they have in previous years, according to USDA data.

10. Totally Jon Stewart on America's mortgage electronic registration system. I love how he finds comedy in a mortgage registration system.