Thursday's Top 10 with NZ Mint: UK may nationalise RBS in desperate move to restart lending; A$ trading surges as central banks buy; Melbourne's suburban ghettos; Dilbert

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

As always, we welcome your additions in the comments below or via email tobernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must read today is Brian Fallow's piece on affordable housing at #9.

1. Will Britain fully nationalise Royal Bank of Scotland? - A debate is brewing inside the Tory-LibDem coalition in Britain over whether the government should take full control of Royal Bank of Scotland to force it to start lending again, the Guardian reports.

The FT is reporting something similar here.

This will become a theme in years to come as the trend of hoarding and deleveraging deepens.

Richer and older savers (as opposed to hedge funds and algorythmic traders) who have experienced years of stock market turmoil and financial market malfeasance are pulling further and further away from investing in companies and investing more and more in either governemnt guaranteed bank deposits or government bonds.

Banks who are awash in these deposits and loans from central banks are only lending money to the safest customers, or increasingly putting any spare cash (that costs them nothing) into government bonds yielding next to nothing (but still generating a carry trade profit).

These banks, which are being forced to deleverage and build up their equity capital by regulators are being very risk averse.

Therefore the problem is that central banks are flooding the world's banking systems with often printed money and little of it is actually getting out into the real economy in the form of loans to businesses and consumers.

So governments desperate for an economic rebound will increasingly look to take control of these banks to get lending going again.

The other cleaner and simpler option is for the government to print the money itself and spend the money itself. That's what western governments did during the late 1930s and 1940s under the threat of national annihilation. See #9 below.

Here's the Guardian.

It is believed that Liberal Democrat Vince Cable is arguing that it should be nationalised to bolster lending to small businesses, but the business secretary, who has made no secret of his belief that 100% control of RBS compared with 83% now would boost lending, appears to be failing to win the support of Cabinet colleagues, including the chancellor, George Osborne.

The bank, which is due to report a first-half loss on Friday, is arguing that it is lending as much as it can, but Cable is thought to feel that Osborne could do more to foster lending given the lack of growth in the economy.

2. Australian dollar a reserve currency? - FTAlphaville picks up on Federal Reserve figures on foreign exchange trading showing increasing trading and demand for the Australian dollar by all sorts of players, including central banks, wanting to get the heck out of the Euro-zone and the usual reserve suspects of America and Japan, if only to diversify some of their risks.

That's going to provide artificial support for the Australian dollar, which may in turn drag our currency up on its 'lucky country' coat-tails. The Australian dollar is, astonishingly, more traded in London than the British pound...

Brilliant.

Not.

3. Here's FTAlphaville with the details:

This decline in the majors stands in stark contrast to significant increases in trading volumes in AUD and CAD. In London, spot trading in AUDUSD and EURAUD increased by 22.4% YoY while trading in USDCAD and EURCAD increased by 6.4% YoY. New York saw similar increases with AUDUSD volumes up 39.6% and USDCAD volumes up 4.0%. These substantial increases in volumes occurred despite significant declines in total spot trading volumes in both London and New York.

BNY Mellon’s Simon Derrick pointed to the Australian dollar last year as a burgeoning reserve currency as it, and others such as the Canadian dollar and the Mexican peso, are buoyed by central banks with more euro and dollar assets than they care for searching for anywhere even remotely appealing to diversify in to.

And, as ex-Alphavillian Neil Hume notes, over the past month the central banks of Germany, Switzerland, Kazakhstan, the Czech Republic, and Vietnam have either bought or are considering adding the Aussie to their foreign exchange reserve portfolios.

4. The Amazing Sandy Weill - Matt Taibbi is incredulous at the about-face executed by Citigroup supremo Sandy Weill last week when he said the Too Big To Fail banks may have to be broken up.

Weill built the first TBTF bank and his revelation in this video below caused a real stir. Also astounding, various lapdogs for America's bank lobby then went on to attack Weill for saying this. One called Weill a Stalinist.

Taibbi can't believe it:

Anyway, what happened after Weill's outburst was similarly fascinating. The significance of Weill’s comments, of course, is that it could now be said to be understood even by a man such as Sandy Weill that the Too-Big-To-Fail model is unsustainable. If even Sandy Weill knows it by now, who else needs convincing?

This should have been a debate-ender, a signal that we can all move past the arguing phase and get to the more daunting logistical task of breaking up mega-firms like Citigroup, Bank of America, and J.P. Morgan Chase.

But it didn’t turn out that way. The dug-in stalwarts in the major financial outlets, much like Japanese soldiers still swearing allegiance to the emperor from Pacific island bunkers years after Hiroshima, came out blasting Weill for, in essence, kowtowing to (probably communist) popular opinion.

5. Suburban ghettos in Melbourne - Australian property commentator Michael Yardney is pointing to a glut of housing on the fringes of Melbourne. Maybe that's where the teeming masses of Auckland should go?

He says 35,000 excess houses have been built and this is pressuring prices down. There now 9 years worth of supply on the market on the fringes of Melbourne.

This stockpile of unwanted housing in many of Melbourne’s newest suburbs has led to warnings by some planning experts that ”suburban ghettos” could emerge on the city’s fringe, creating a social divide. Unfortunately over the past year two things have happened…

Demand has fallen and the number of outer suburban homes with ”For Sale” signs has jumped by almost 40 per cent leaving Melbourne with a record 55,290 unsold homes in June – the highest number of any capital city in Australia. SQM Research says most of these were concentrated in about 50 suburbs on Melbourne’s periphery, including Hoppers Crossing, Tarneit, Cranbourne, Point Cook, Derrimut, Pakenham, Melton, Roxburgh Park and Epping.

According to RMIT planning expert Professor Michael Buxton, ”We are now building suburbs that are destined to fail and ensnaring people in an economic trap.”

6. The problem with wages - Dylan Matthews writes over at Washington Post that real wages for American men have actually been falling sharply in recent years.

The fall has actually gone as far as 28% since the early 1970s. And it's not just uneducated men. Even men with College degrees have seen sharp falls, as the second chart shows.

As you can see on the black line in the above graph, median earnings for men in 2009 were lower than they were in the early 1970s. And it gets worse. The decline shown above is actually too mild, because it doesn’t take into account the massive exodus from the workforce of men since that period. Between 1960 and 2009, the share of men working fulltime fell from 83 percent to 66 percent, and the share not making formal wages tripled from 6 percent to 18 percent. When you take all men, not just those working fulltime, into account, the slight decline in the above graph becomes a plummet of 28 percent in median real wages from 1969 to 2009.

High school dropouts’ earnings have fallen 66 percent since 1969, and people with some college – the median level of education in the US – have seen earnings fall by a third. Reasonable people can disagree about what caused this massive decline and what should be done to fix it. But it’s a major crisis and people like Conard who deny its existence are just wrong.

7. French transaction tax - This has gone unheralded. Last night France unilaterally introduced a 0.2% tax on all share purchases, Sky reported.

8. Is the boom ending?- This BBC story about the decreasing attractiveness in China of foreign educated Chinese students suggests the boom in education of Chinese students in places like Australia and New Zealand may be ending.

There was a time when Chinese students who obtained higher education abroad were considered to be the most fortunate of their generation. After graduating from elite universities in the US and Britain, they were virtually guaranteed the best career prospects upon their return.

Those students were colloquially referred to as sea turtles - returning home with the world on their backs. But things are different now. These very students are now referred to as seaweed - washed up on the shore, with little or no prospect of finding work once they return home.

9. Market failure - Brian Fallow has written a nice piece at NZHerald about Bill English's startling admission that no new houses are being built for the poorest quarter of our population.

He suggests a mass government house building campaign. Good.

Right now the Government can borrow 10-year money for 3.4 per cent. Housing Minister Phil Heatley, on TV3's The Nation on Saturday, said the Government already had $15 billion invested in 70,000 state houses.

"We're in no position to build more and more state houses, you know, we're just not in that position."

Well, why not? The need to rein in public debt? When it suits it, as with state asset sales, the Government likes to pretend there is only one side to its balance sheet, the debt side.

But there is a world of difference between increasing public debt in order to fund an operating deficit, and increasing it to fund the acquisition of long-lived assets. Surely the financial markets can tell the difference.

10. Totally Jon Stewart on the Olympics