Friday's Top 10 at 10 with NZ Mint: The Fed's Voodoo economics; Dutch (anti-bank bonus) people power; Tax cut myths busted; Congress slams 'abusive' Goldman; Dilbert

Here's my Top 10 links from around the Internet at 10 to 10 am 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.

I'm still full of the joys of autumn today. And I enjoy watching the Foo Fighters.

1. Our big opportunity - New Zealand does has some things going for it.

The amazing growth of China is at the top of the list.

Demand for our protein from China's rising middle class seems to have lifted the structure of commodity prices and our terms of trade. Although we have to be careful it doesn't cause our own version of the 'Dutch Disease' where it just pushes up our currency and kills off what's left of the rest of the export sector.

But there's much more we can do. More than 50 million Chinese are expected to spend US$55 billion while traveling overseas this year. How much of that will we get?

People's Daily (China's Pravda) reports on the wonders of Chinese travelers spending some of China's surplus US dollars overseas.

Read the tone of this report to get a sense of what the Chinese want to do. They are prepping the ground for consumers to say a higher yuan is a good thing. It means you can buy more stuff overseas.

And travel overseas. To places like New Zealand. 

An increasing number of Chinese tourists are expected to travel overseas and spend a record 55 billion U.S. dollars this year, boosted by an appreciating Chinese currency, the China Tourism Academy (CTA) said. In its 2011 report on China's overseas tourism, the CTA said that the number of Chinese citizens traveling overseas and their tourism consumption will climb to new highs this year, securing outbound tourism growth of 13 percent over last year.

Dai Bin, president of the CTA, said the strong growth of Chinese overseas consumption will not only help drive the economy in tourist destinations but also enable China's travel services to enjoy a high profit margin compared to the domestic tourism market.

Dai said that a sound domestic economy and the world's economic recovery, as well as a more convenient visa policy for Chinese tourists visiting foreign countries, will help increase the level of Chinese tourism consumption overseas this year. The yuan, China's currency, rose to a new high of 6.5401 per U.S. dollar on Monday. In terms of its central parity rate, the yuan has risen more than 1.2 percent against the U.S. dollar this year, making foreign goods and service cheaper overseas for Chinese tourists.

According to CTA statistics, 57.39 million Chinese tourists traveled overseas in 2010, bringing a total of 48 billion U.S. dollars to overseas destinations.

2. New kind of people power - Umair Haque at Harvard Business Review muses on the meaning of the revolt by Dutch banking customers at the bonuses of their bankers. The revolt led to a 100% tax on such bonuses.

This was no mere "consumer revolt." It was open rebellion by the people formerly known as consumers. Far from "voting with their wallets" or their "feet" — often impossible in an economy chock-a-block full of cushy, cozy oligopolies — people decided to take collective action of a very different kind: as citizens of a vibrant society, not merely as mute, hapless "consumers" of mass-produced junk.

Sure, as some have done, you can try to aggressively portray your giant corporation or notable investment bank as a shining beacon of humanity, progress, achievement. But who are you kidding? In a day and age where your once-secret follies and foibles leak across the globe at the speed of light, the only people who are going to take that at face value are probably all sitting around your boardroom table right now (and they're staring nervously at their shoes).

3. House prices falling faster in Britain than Spain - Ian Cowie reports at the Telegraph on the depth of pain now reverberating around the British economy as the government slashes and house prices keep falling. But there's a twist. Lower priced houses are falling, but the richer ones are rising. The perfect sign that the rich are getting richer while the poor get poorer.

Sound familiar?

House prices at the bottom end of the market are now falling faster in Britain than Spain, according to a comprehensive survey of the biggest house price indices.

But house prices continue to rise at the top end of the market, with an average increase of 3.4pc over the last year among the most expensive fifth of properties. By contrast, the cheapest fifth of properties saw prices fall by 5.1pc over the year,  compared to a 1.9pc decline over the same period in Spain.

4. Voodoo economics - Satyajit Das writes at Naked Capitalism about the Fed's quantitative easing (QE) policy.

He nails the problem here:

QE’s real side effects are subtle. It discourages savings, drives a rush to re-risk, encourages volatile capital flows into emerging markets and forces up commodity prices.

Low interest rates perversely discourage saving, at a time when indebted countries, like America, need to increase saving to pay down high levels of debt. Low interest rates reduce the income of retirees or others living off savings, further reducing consumption.

Low rates have driven a rush to increase risk, in search of higher returns. In January 2011, the difference between interest rates on speculative or non-investment grade corporate bonds and investment-grade debt fell to around 3.50%, the lowest level since November 2007. In 2010, companies sold a record $286.7 billion of junk bonds to investors driven by the need for higher rates. The search for yield extends to stocks and also structured products, where investors take on complex returns in return for additional returns.

The rush to re-risk has reduced general lending standards. Practices that contributed to the global financial crisis, such as “covenant lite” loans with low protection for lenders, have re-emerged. Under-pricing of risk is also evident, creating the foundations for future problems.

5. Nine things the rich don't want you to know about taxes - David Cay Johnston writes at Williamette Week  about how the supply side economics of income tax cuts simply don't work and arn't true. 

For three decades we have conducted a massive economic experiment, testing a theory known as supply-side economics. The theory goes like this: Lower tax rates will encourage more investment, which in turn will mean more jobs and greater prosperity—so much so that tax revenues will go up, despite lower rates. The late Milton Friedman, the libertarian economist who wanted to shut down public parks because he considered them socialism, promoted this strategy. Ronald Reagan embraced Friedman’s ideas and made them into policy when he was elected president in 1980.

For the past decade, we have doubled down on this theory of supply-side economics with the tax cuts sponsored by President George W. Bush in 2001 and 2003, which President Obama has agreed to continue for two years.

You would think that whether this grand experiment worked would be settled after three decades. You would think the practitioners of the dismal science of economics would look at their demand curves and the data on incomes and taxes and pronounce a verdict, the way Galileo and Copernicus did when they showed that geocentrism was a fantasy because Earth revolves around the sun (known as heliocentrism). But economics is not like that. It is not like physics with its laws and arithmetic with its absolute values. 

Tax policy is something the framers left to politics. And in politics, the facts often matter less than who has the biggest bullhorn.

6. Still Too To Big To Fail - Former IMF economist Simon Johnson speaks about how the To Big To Fail problem has not gone away. It is worse than ever. A fascinating and passionate view.

"Goldman Sachs is too big to fail. That's scary. From that scariness comes power."

7. Goldman slammed - Bloomberg reports a Senate panel saying Goldman Sachs misled clients and the Congress about toxic mortgage debt.

Senator Carl Levin, releasing the findings of a two-year inquiry, said he wants the Justice Department and the Securities and Exchange Commission to examine whether Goldman Sachs violated the law by misleading clients who bought the complex securities known as collateralized debt obligations without knowing the firm was betting they would fall in value.

The Michigan Democrat also said federal prosecutors should review whether to bring perjury charges against Goldman Sachs Chief Executive Officer Lloyd Blankfein and other current and former employees who testified in Congress last year. Levin said they denied under oath that the firm took a financial position against the mortgage market solely for its own profit, statements the senator said were untrue.

The panel said Goldman Sachs relied on “abusive” sales practices and was rife with conflicts of interest that encouraged putting profits ahead of clients.\

8. 'Flying pigs and unicorns' - The WSJ reports on the same Senate panel's report into the financial crisis and how it shows the depth of the cynicism and moral vacuum inside the investment banks during the mortgage boom and bust in America.

Gullible Australians get a mention.

Some call the concept of owning a home the American dream. Wall Street bankers called it something different: "Pigs." "Crap." A "white elephant, flying pig and unicorn." Those descriptions of the U.S. mortgage market were highlighted in a U.S. Senate report Wednesday that offered one view of the events leading up to the financial crisis of 2008.

It trains much of its ire on Goldman Sachs, which Sen. Levin said deceived some clients by betting against home loans in 2006 and 2007, while simultaneously selling mortgage securities. At a news conference Wednesday, Senate staffers manned large posters with headings such as "Goldman Conflicts of Interests" and "The Hudson Scam," in reference to a particular Goldman bond offering.

The report shows how on Dec. 14, 2006, executives gathered in a conference room adjoining the office of Goldman Chief Financial Officer David Viniar. They agreed the firm needed to cut its bullish bets on mortgage bonds.

The Senate report alleges that Goldman then undertook a multibillion dollar series of trades to hedge its bullish bets by selling mortgage-related trades to allegedly unsuspecting investors. The head of Goldman's mortgage unit recommended managers of Goldman's sales force issue "ginormous" sales credits to those who could find investors anywhere in the world.

A Goldman executive found one in Australia. On April 26, 2007, in an email with the subject line "utopia," the executive said, "I think I found white elephant, flying pig, and unicorn all at once."

A month later, another Goldman executive lamented his firm's reputation after a stretch of risky mortgage deals Goldman had sold. He described debt managers that worked with the firm as "street wh— managers."

"It pains me to say it but citi, ubs, db [Deutsche Bank], lehman, and ms [Morgan Stanley] have much stronger franchises—among large dealers only ML [Merrill Lynch] is more reviled than [Goldman's] business," the executive wrote.

Who used to work for Merrill Lynch?

9. Oil gone in 50 years - HSBC warns in this CNBC video that the world will run out of oil in 50 years...

10. Totally Clarke and Dawe video - I like Fridays for this reason alone. Barry Metricpressure from Queensland answers some general knowledge questions.

The answers seem strangely focused on Queensland.

11. Totally Foo Fighters video - I'm a fan. Here's a gem of a live performance video. Good value for (no) money. Nearly two hours of Foo goodness.