Top 10 at 10: Greeks want Germany to give back Nazi gold; De-leveraging unavoidable; Zombie hunting trip; Dilbert

Here are my Top 10 links from around the Internet at 10 past 11. I welcome your additions and comments below or please send suggestions for Friday's Top 10 at 10 to bernard.hickey@interest.co.nz We try not to design in failure at Interest.co.nz 1. Wondering why spending is so subdued? - Martin Wolf at FT.com has a thought-provoking piece on why the global economy is really struggling to get going and what might happen next. He concludes it is because private spenders are saving more after their debt binge and there's little can be done to prevent the deleveraging slowing growth for years to come. Only massive public investment in the developed world and increased consumption in China might prevent an inevitable depression, he suggests. It's the most bearish I've seen Wolf in a long time.

So what happens next? We can identify two alternatives: success and failure. By "success", I mean reignition of the credit engine in high-income deficit countries. So private sector spending surges anew, fiscal deficits shrink and the economy appears to being going back to normal, at last. By "failure" I mean that the deleveraging continues, private spending fails to pick up with any real vigour and fiscal deficits remain far bigger, for far longer, than almost anybody now dares to imagine. This would be post-bubble Japan on a far wider scale. Unhappily, the result of what I call success would probably be a still bigger financial crisis in future, while the results of what I call failure would be that the fiscal rope would run out, even though reaching the end might take longer than worrywarts fear. Yet the big point is that either outcome ultimately leads us to a sovereign debt crisis. This, in turn, would surely result in defaults, probably via inflation. In essence, stretched balance sheets threaten mass private sector bankruptcy and a depression, or sovereign bankruptcy and inflation, or some combination of the two.

Wolf also compiles this fascinating chart showing how the private sectors in various countries are saving more. Note how New Zealand's private sector is just behind Iceland, Ireland and Spain in saving more. This helps explain why Christmas was so quiet for retailers and why the housing market hasn't kicked on since that mini-surge in March, April and May of last year. Deleveraging is unavoidable, painful and long-lasting. Many thought we dodged a bullet in 2008 and 2009. We didn't. It will get us in the end.

2. 'Remember the war' - The Greeks are squirming under the thumb of Germany's insistence that it slash its budget deficit quickly through cost reductions and tax increases. Reuters reports Greek Deputy Prime Minister Theodoros Pangalos saying Greece wants the gold back the Nazis stole in the war... That will help bilateral relations.

Pangalos criticised Germany's attitude towards the Greek crisis, saying Athens had never received compensation for the economic impact of the Nazi occupation during World War Two. "They took away the Greek gold that was at the Bank of Greece, they took away the Greek money and they never gave it back. This is an issue that has to be faced sometime in the future," he said. "I don't say they have to give back the money necessarily but they have at least to say 'thanks'," he said. "And they shouldn't complain so much about stealing and not being very specific about economic dealings." Greek politicians have been outraged by the tone of media coverage of the debt crisis in German media, such as a front-page picture in the weekly magazine Focus of "Venus de Milo"-type statue making an obscene finger gesture with the headline "Swindlers in the euro zone."

3. 'Mutually Assured (Financial) Destruction' - Ambrose Evans Pritchard at The Telegraphjoins the debate over what the fall in reported Chinese holdings of US Treasuries in recent months actually means. Some say the apparent fall was just smoke and mirrors and the Chinese remain donkey deep in US paper. Pritchard is not so sure, citing various Chinese government propaganda.

A front-page story in the state's China Information News said the record $34bn sale of US bonds in December was a "commendable" move. The article was republished by the National Bureau of Statistics, giving it a stronger imprimatur. It follows a piece last week in China Daily, the Politburo's voice, citing an official from the Chinese Academy of Sciences praising the move to "slash" holdings of US debt. This was published on the same day that US President Barack Obama received the Dalai Lama at the White House, defying protests from Beijing. China's power is growing so fast that it now feels confident enough to raise the stakes on a string of festering conflicts with the US. It has threatened to impose sanctions on any US firm that takes part in a $6.4bn arms deal for Taiwan agreed by the White House. This is a tougher response that on any previous occasion and raises the spectre of a trade war over Boeing, the key supplier. "Chinese leaders are deploying their reserves to try and pressure the US to stop haranguing China about its currency and trade policies, and to back off from interference in its domestic issues," said professor Eswar Prasad, ex-head of the IMF's China division. Stephen Jen from BlueGold Capital said China is probably moving out of bonds from many countries as it prepares for a likely 5pc revaluation of its currency in coming weeks. Other assets might prove better protection against an immediate loss on holdings

4. Price to rent ratio - This chart at Calculated Risk of the ratio of house prices to rents in America is another interesting measure of whether a housing market is overvalued. It suggests the 30% plus slump in house prices there  has pulled prices somewhere close to a long term trend.

This suggests that house prices are still a little too high on a national basis. But it does appear that prices are much closer to the bottom than the top.

Here are the best figures for New Zealand that we could find. We have data from the Department of Building and Housing data on rents in New Zealand going back to 2006. Here's what it shows for Auckland and New Zealand. Essentially, property investing in New Zealand makes no sense now and makes even less sense than it did last year. 4. The backdown begins - Treasury Secretary Timothy Geithner is backing away from the Paul Volcker-led plans to shut down the proprietary trading operations of the 'Too Big to Fail' banks. Geithner is a patsy for his mates at Goldman Sachs. He proved it during the AIG debacle when he was the New York Fed governor. Now's he's doing it again. How long before Obama is forced to sack him? Bloomberg has the 'back away' story. Bernanke is arguing too in favour of banks staying as market makers in Treasuries.

Dealers who trade in government bonds on behalf of clients need to be able to maintain inventories in their firms' own accounts to insure market liquidity, said Lee Sachs, a counselor to Treasury Secretary Timothy F. Geithner. "This measure is not aimed at anything having to do with customer business, market- making or hedging," Sachs, a former senior managing director in charge of debt capital markets at Bears Stearns Cos., said in an interview. The Obama administration is working with the Senate on legislation to forbid banks that take government-insured deposits from trading exclusively for their own profit or investing in hedge funds or private-equity operations. Federal Reserve Chairman Ben S. Bernanke said today that the so-called Volcker rule "might be appropriate" to control excessive risk-taking. "You have to be careful that you don't for example, prevent a good hedging which actually reduces risk or that you don't prevent market-making which is good for liquidity," Bernanke said in response to a question in testimony before the House Financial Services Committee. "One possibility if you were to go in this direction is to give some discretion to the supervisors."

5. Lending collapse - The Wall St Journal reports how US bank lending is falling at an "Epic Pace". There are similar concerns around now about Europe. God help us all if the Chinese don't somehow turn their economy into a consumption engine.

U.S. banks posted last year their sharpest decline in lending since 1942, suggesting that the industry's continued slide is making it harder for the economy to recover. While top-tier banks are recovering at a faster clip, the rest of the industry is still suffering, according to a quarterly report from the Federal Deposit Insurance Corp. Banks fighting for survival, especially those plagued by losses on commercial real estate, are less willing to extend loans, siphoning credit from businesses and consumers. Besides registering their biggest full-year decline in total loans outstanding in 67 years, U.S. banks set a number of grim milestones.

6. Year of the living dead - Further to the story above, Rolfe Winkler at Reuters wonders if the Federal Deposit Insurance Corp is so stretched and snow-bound that it hasn't been able to shut down tottering small and regional banks. He worries about zombies. Could America's regional banking system be turning Japanese?

The pace of bank seizures "” up by half year-to-date "” hasn't kept pace with the growth of the problem bank list, which has nearly tripled. The worry is that has left too many zombies hobbling along, sucking up deposits and hoarding capital that might otherwise be lent by healthy institutions, thereby helping the economy to rebound. True, the "Snowmaggedon" storms that closed Washington earlier this month complicated travel plans for FDIC staff. But the key lesson from the savings and loan debacle was that delays in closing insolvent banks increases the resolution costs for FDIC and, ultimately, taxpayers. With spring just around the corner, Bair needs to set her sights on a big zombie hunting trip.

7. By the way, here's the St Louis Fed's chart on new US  family home sales going back to the 1960s as a proportion of the population. It looks like a Depression to me.

8. Totally irrelevant (but fun) picture Here's what an ice skater looks like in mid-spin.

9. The Doomsday cycle - Former IMF assistant director and now MIT professor Simon Johnson and LSE Researcher Peter Boone have written and epic must-read at voxeu.org on the financial crisis.

The danger this system poses is clear, as Figure 1 (below) shows. With our financial system now well oiled to take on very large risk once again, and to gamble excessively, can we be sure that we can continue this cycle of bailing out eventual failures? At what point will the costs be so large that both fiscal and monetary policies are simply incapable of stopping the collapse? Last year, we came remarkably close to collapse. Next time, it may be worse. The threat of the doomsday cycle remains strong and growing. Over the last 30 years, the US financial system has grown to proportions threatening the global economic order. This column suggests a "˜doomsday cycle' has infiltrated the economic system and could lead to disaster after the next financial crisis. It says the best route to creating a safer system is to have very large and robust capital requirements, which are legislated and difficult to circumvent or revise.

10. Totally (somewhat)  irrelevant video - Lewis Black and Jon Stewart on the recession.

http://editorialcartoonists.com/cartoons/BeeleN/2010/BeeleN20100224A_lo… http://dealbook.blogs.nytimes.com/2010/02/24/china-tells-banks-to-restr…