Top 10 at 10 to 1: The Lucky Country is too lucky for its own good; The real Fink; Dilbert

Here are my Top 10 links from around the Internet at 10 to 1. I welcome your additions and comments below or please send suggestions for Thursday's Top 10 at 10 to bernard.hickey@interest.co.nz We still have no goats at interest.co.nz 1. Man vs crowd - To his credit Aussie economist Steve Keen is still arguing that the Australian housing market is pumped up by hot air (credit) and will eventually deflate. Virtually no one in Australia believes him. More fool them. He details his case at (enormous) length here. He includes some cracking charts. How lucky can the Lucky Country be before it runs out of luck? Here he shows just how out of whack Australia is with America.

He also points out the inevitability of debt deflation. It's just a matter of time.

This is why debt-deflation matters, and it's also why we are barely at the half-time mark in the GFC. Though government spending has countered the fall in debt-financed spending to some degree, that fall has only hit 40% of the level that applied during the Great Depression, even though debt levels are substantially higher (relative to GDP) than they were back then. The process can be countermanded to some degree by the government running a deficit, which counteracts the fall in aggregate demand caused by private deleveraging. But the government deficit would need to be far higher than current levels to return us to prosperity if nothing is also done about the astronomical level of private debt. With the deficits that are being contemplated today, I expect the outcome to be that the rest of the OECD will "turn Japanese" and enter a long-running, low level Depression. Actions that limit those deficits"“or even worse, force countries in crisis like Greece to impose austerity measures to reduce deficits back to zero"“will turn this from a drawn-out Depression into a sudden and deep one.

So the Australian gambit out of the GFC"“get back into debt as fast as possible"“may soon run its course. We should then find ourselves in the same situation as in the rest of the OECD"“deleveraging. The fact that we are taking the "hair of the dog" approach to a debt-hangover (get drunk again on debt the next morning) is readily apparent in this comparison of Australian and US private debt levels: Australia actually began to de-lever before the USA did, but just as they hit deleveraging with a vengeance, our aggregate private debt started to grow once more.

2. Chinese debt problem? - This is a new one on me. Of all the world's economies, I thought China was the one without a debt problem because of all the foreign reserves it holds and its high domestic savings rate. But apparently not, according to Professor Victor Sikh from Northwestern University who has studied lending to Chinese local government bodies. Bloomberg has the report. The future of China's growth and how it handles any bubbles is crucial for New Zealand more than ever. Australia is benefiting from China's boom and we benefit from Australia's benefits. International investors are ignoring our own foreign debts of over 100% of GDP because we're right next door to Australia. What happens if a Chinese housing/lending bubble bursts and Australia's housing bubble bursts? Best not to think too deeply about it.

China's hidden borrowing may push government debt to 96 percent of gross domestic product next year, increasing the risk of a financial crisis in the world's third-biggest economy, Professor Victor Shih said. "The worst case is a pretty large-scale financial crisis around 2012," said Shih, a political economist at Northwestern University in Evanston, Illinois, who spent months researching borrowing transactions by about 8,000 local-government entities. "The slowdown would last at least two years and maybe longer," the author of the book "Factions and Finance in China" said in a phone interview March 1. Surging borrowing by local-government entities, uncounted in official estimates of China's debt-to-GDP ratio, is the key reason for Shih's concern. Harvard University Professor Kenneth Rogoff said Feb. 23 that a debt-fueled bubble in China may trigger a regional recession within a decade, while hedge-fund manager James Chanos has predicted a Chinese slump after excessive property investment. By Shih's count, China's debt may reach 39.838 trillion yuan ($5.8 trillion) next year. His forecast for debt-to-GDP compares with an International Monetary Fund estimate for China of 22 percent this year, which excludes local-government liabilities. The IMF sees Spain at 69.6 percent, the U.S. at 94 percent, Greece at 115 percent and Japan at 227 percent. Chinese officials allowed lending to explode from late 2008 to fight off the effects of the global financial crisis. In 2009, new loans rose to a record 9.59 trillion yuan ($1.4 trillion).

3. Reform there too - The Centre for Independent Studies has released a report called "The Unfinished Business of Australian Tax Reform" which recommends the same medicine suggested by our own Tax Working Group. News.com.au has a cut down version of the report.

"The global financial crisis has strengthened the case for taxation reform," CIS senior fellow Robert Carling said, releasing a paper The Unfinished Business of Australian Income Tax Reform today. "Boosting productivity growth should be top priority and personal income tax reforms of the right kind will support that objective." He said policymakers must also seriously consider implementing a dual system where labour income is subject to a graduated scale, while capital income would be taxed at a flat rate. Under its proposal, those earning between $16,001 and $37,000 would pay a 15 per cent tax rate, between $37,001 and $80,000 would pay 27 per cent and above $80,000 would pay 35 per cent.

4. Anatomy of a crisis - The WSJ has done a nice 10 minute video explaining the Greek debt crisis. Worth watching. Lots of juicy detail and colour. The Greeks cry a lot... It seems Greece hid a bunch of debt with swaps to ensure it got into the euro zone. Anyone opening a business in Greece must apply for 49 licenses. The shadow economy is worth at least 30% of GDP. Here's the final warning from the EU's monetary policeman Olli Rehn. "Either you get your debt under control or your debt starts controlling you." Lessons for us all. 5. The ultimate vicious cycle - So many jobseekers in America now have bad credit records that it has become a problem when employers do credit checks on potential employees. So now a bunch of states are passing laws banning employers from doing these checks, AP reports. Oh boy. This is a country in deep trouble.

State legislators in Illinois and 15 other states have proposed bills to ban credit checks on most job applicants, according to the National Conference of State Legislatures. Hawaii and Washington already have such bans in place. "We are in the great recession and this creates a vicious cycle," said Maryland Delegate Kirill Reznik, who drafted a bill being considered in his state. "People lose their jobs, that naturally precipitates them getting behind on bills, their credit scores go down, they are trying to find a job to pay off the bills, and employers won't hire them because of their credit score. Sixty percent of employers recently surveyed by the Society for Human Resources Management said they run credit checks on at least some job applicants, compared with 42 percent in a somewhat similar survey in 2006.

6. Here's a relevant Doonesbury cartoon on Wall St bankers and their ethics. Indicative of a mood of the nation.

7. Worth a read - Vanity Fair does some great long form financial journalism. I'm not sure this piece from Suzanna Andrews is, (because I don't really know that Manhattan-Washington nexus) but it certainly goes into a lot of depth about BlackRock maestro Larry Fink. It seems he helped invent securitisation, but rather than be killed by it, he is now more powerful than ever. BlackRock also has a computer called Alladdin that knows everything about US$9 trillion in funds under management. Sounds bigger than the one in Wellington that was used to make Avatar.

His giant BlackRock money-management firm controls or monitors more than $12 trillion worldwide"”including the balance sheets of Fannie Mae and Freddie Mac, and the toxic A.I.G. and Bear Stearns assets taken over by the U.S. government last year. But BlackRock's enormous and growing influence and its sheer size"”too big to fail, some say"”has begun to raise questions. "It's like the Blackwater of finance, almost a shadow government," says one senior bank executive, referring to the mountain of government contracts awarded to the firm. Although others"”including the massive California-based Pacific Investment Management Company"”have benefited from the gravy train of post-bailout government jobs, none appears to have gained nearly as much as BlackRock.

8. Problem for Geithner - Could the deal done to take over AIG be illegal? This piece from Washington lawyer and think tanker David Jerushalmi at The American Thinker thinks that maybe it was.

The brute fact that now standing exposed before us is the use of an invalid Trust structure to conceal the unlawful ownership and control over 77.9% of AIG's equity and voting rights by the FED. If Geithner knew he was breaking the law, then this just happens to be the definition of criminal money-laundering under Title 18, Section 1956. Secretary Geithner has some explaining to do to AIG's public shareholders. We suggest that he seek legal advice first -- but this time, from lawyers who actually know what they are doing.

9. Totally irrelevant picture - This is a gummy bear chandelier. Apparently it makes the light very soft... Especially for Roger Thompson.

10. Totally irrelevant video - Remember OK Go? They are the band who did the choreographed one-take treadmill song called 'Here it goes again' They've outdone themselves here with the most amazing domino one-take thing called 'This Too Shall Pass'. Watch to the end. You'll love it. Here's an equally excellent version of the same song involving marching bands. I prefer the music in this one. This is the band that took on its record company about not allowing embeds on its YouTube videos. Looks like they won.