Here are my Top 10 links from around the Internet at 10 past 10. I welcome your additions and comments below or please send suggestions for Wednesday's Top 10 at 10 to bernard.hickey@interest.co.nz We love powerpoints at Interest.co.nz. There's a good juicy one below. 
1. Dawning of a new age - Americans are finally beginning to understand the scale of the economic disaster leading up to the crash of 2008 and now the fallout. Thomas Friedman captures the mood nicely in this New York Times Editorial titled 'The Fat Lady has Sung' where he highlights news that residents in Tracy California now have to pay US$300 whenever they call 911...
Welcome to the lean years. Yes, sir, we've just had our 70 fat years in America, thanks to the Greatest Generation and the bounty of freedom and prosperity they built for us. And in these past 70 years, leadership "” whether of the country, a university, a company, a state, a charity, or a township "” has largely been about giving things away, building things from scratch, lowering taxes or making grants. But now it feels as if we are entering a new era, "where the great task of government and of leadership is going to be about taking things away from people," said the Johns Hopkins University foreign policy expert Michael Mandelbaum. Indeed, to lead now is to trim, to fire or to downsize services, programs or personnel. We've gone from the age of government handouts to the age of citizen givebacks, from the age of companions fly free to the age of paying for each bag. Let's just hope our lean years will only number seven. That will depend a lot on us and whether we rise to the economic challenges of this moment. Our parents truly were the Greatest Generation. We, alas, in too many ways, have been what the writer Kurt Andersen called "The Grasshopper Generation," eating through the prosperity that was bequeathed us like hungry locusts. Now we and our kids together need to be "The Regeneration" "” the generation that renews, refreshes, re-energizes and rebuilds America for the 21st century.
2. Print baby san print - Japan has finally thrown off its remaining shackles in the wake of the supposedly radical change of government. Zerohedge reports Bank Of Japan governor Masaaki Shirakawa said that Japan will print the kitchen sink if it has to to beat "stubborn deflation." Whoever devalues last loses...
In a speech before the Lower House Budget Committee Shirakawa said that not only will Japan continue monetizing its debt, but that they will happily accelerate this action if it means killing the Yen and creating a glimmer of hope for inflation. Carry traders everywhere rejoice. "Overcoming deflation and returning to a sustainable economic recovery path under price stability remain a vital issue for the BOJ. We will continue injecting ample liquidity into financial markets to overcome deflation." The US and Japan... soon China and the ECB - why all the concerns about who will buy each other's sovereign debt? In a few months each central bank will purchase every single piece of paper printed by respective Treasury departments. Remember - whoever devalues last, loses.
3. Bloody hedge funds - Felix Salmon at Reuters points out a WSJ story about how some of the big US exchange traded funds (ETFs) are starting to underperform their indices because fancy hedge funds are running rings around them to make arbitrage profits. Sigh.
The problem is that when ETFs become very big, they become lumbering and predictable, and nimble hedgies know exactly what they're going to do and when they're going to do it. As a result, the smart money front-runs the dumb ETFs, which end up underperforming, sometimes by a very large margin: the $40 billion iShares MSCI Emerging Markets Index ETF (EEM) lagged its benchmark by a whopping 6.7 percentage points in 2009. That's over nine times its total expense ratio.
4. Thanks George - George Soros, the hedge fund pirate responsible for forcing the pound out of the European Exchange Rate Mechanism in 1992, now thinks the euro will fall apart. He's not trading much any more so many think he genuinely believes this and is not just talking his book.
The European Union was brought into existence by putting the cart before the horse: setting limited but politically attainable targets and timetables, knowing full well that they would not be sufficient and require further steps in due course. But for various reasons the process gradually ground to a halt. The EU is now largely frozen in its present shape. The same applies to the euro. The crash of 2008 revealed the flaw in its construction when members had to rescue their banking systems independently. The Greek debt crisis brought matters to a climax. If member countries cannot take the next steps forward, the euro may fall apart. Makeshift assistance should be enough for Greece, but that leaves Spain, Italy, Portugal and Ireland. Together they constitute too large a portion of euroland to be helped in this way. The survival of Greece would still leave the future of the euro in question. Even if it handles the current crisis, what about the next one? It is clear what is needed: more intrusive monitoring and institutional arrangements for conditional assistance. A well-organised eurobond market would be desirable. The question is whether the political will for these steps can be generated.
5. Unintended consequences - Could the push by Barack Obama and Paul Volcker to stop the 'Too Big to Fail' banks from running trading desks accidentally disable the monstrous Treasuries market just when the US government needs it to work? Gillian Tett at the FT.com cites concerns from the head of Barclays about this happening. If it did, interest rates would explode higher globally. I would have thought US$4 trillion of Treasuries rolling in four months would be more than enough to do the job, but we'll see. The lobbying and threats have begun in earnest.
Could the Obama administration's plans to curb "proprietary trading" produce a nasty jolt for the US Treasuries market? If Bob Diamond, head of Barclays Capital, is to be believed, there is a risk it might. Last month, Paul Volcker, a key Obama adviser, startled Wall Street by warning that the US government was keen to curb how deposit-taking institutions make proprietary bets. Exactly what Congress will end up defining as "proprietary trading" is still very unclear; so, is the precise list of banks that would be caught within that net. But groups such as Barclays Capital, are clearly uneasy. After all, as Mr Diamond was at pains to tell regulators in Davos late last month, if the authorities impose a truly sweeping definition of proprietary trading that could discourage them from acting as market makers in sectors such as US Treasuries. And that, in turn, might make it harder for the US government to sell all its government bonds to global investors. Or so Barclays claims. "The US has about $8 trillion of debt outstanding and $4 trillion is coming due in the next few months," Mr Diamond warned. "There is a real need for banks like Barclays to be providing liquidity." But groups such as Barclays Capital, are clearly uneasy. After all, as Mr Diamond was at pains to tell regulators in Davos late last month, if the authorities impose a truly sweeping definition of proprietary trading that could discourage them from acting as market makers in sectors such as US Treasuries. And that, in turn, might make it harder for the US government to sell all its government bonds to global investors. Or so Barclays claims. "The US has about $8 trillion of debt outstanding and $4 trillion is coming due in the next few months," Mr Diamond warned. "There is a real need for banks like Barclays to be providing liquidity."
6. Big bad black bird - Vitaly Katsenelson reckons the China economy is shaping up to be the 'Mother of All Black Swans'. Remember a Black Swan is a shock event that triggers a financial crash. Here's the Powerpoint with the argument. HT Blair Rogers via Twitter. China - The Mother of All Black Swans - By Vitaliy Katsenelson 7. Target backflip? - The International Monetary Fund is wondering whether strict inflation targeting and unfettered capital flows around the globe are such good ideas after all, the New York Times reports.
The International Monetary Fund has long preached the virtues of keeping inflation low and allowing money to flow freely across international boundaries. But two recent research papers by economists at the fund have questioned the soundness of that advice, arguing that slightly higher inflation and restrictions on capital flows can sometimes help buffer countries from financial turmoil. One paper has received particular attention for suggesting that central banks should set their target inflation rate much higher "” at 4 percent, rather than the 2 percent that is the most widely held standard. The significant drop in the volatility of output and inflation since the mid-1980s "” a period known as the Great Moderation "” helped lull "macroeconomists and policy makers alike in the belief that we knew how to conduct macroeconomic policy," the fund's chief economist, Olivier Blanchard, wrote in one of the papers. "The crisis clearly forces us to question that assessment." That paper examines how, in hindsight, higher rates would have helped in the current crisis. "Higher average inflation, and thus higher nominal interest rates to start with, would have made it possible to cut interest rates more, thereby probably reducing the drop in output and the deterioration of fiscal positions," Mr. Blanchard and two other authors wrote in the paper, released Feb. 12. The other paper, released Friday, said that in the aftermath of the crisis, officials were "reconsidering the view that unfettered capital flows are a fundamentally benign phenomenon."
8. Are China's savers mobilising their cash ?- Reuters BreakingViews points out that China's notoriously heavy savers may be about to spend their money, which may drive up inflation, but also create the consumer economy the world has been hoping and waiting for. One to watch.
One piece of evidence for what economists call "dissaving" is the widening gap between growth in M1, currency in circulation plus demand deposits, and M2, which adds time deposits. When M1 is growing faster than M2, it is usually a sign that money is being moved from savings to current accounts. That has been happening every month since September 2009. Another measure of the trend is the amount of Chinese household savings, compiled by the central bank. The increase of household savings in 2009 was $48 billion less than the previous year, despite a 9.8 percent increase in real disposable income. The cash in current accounts is likely to be spent sooner rather than later. That sounds like a good thing for an economy that saves too much. But right now, the extra cash could help push up prices, both for goods and services and for financial assets like property and stocks.
9. China is not America's banker - Michael Pettis is an academic economist in Beijing who is closely watched because he is well connected in China. His blog posts do ramble, but their are gems in there, including the idea that China has no choice but to buy US dollar assets (which usually means US Treasuries) while it is running a huge trade surplus with America and has a fixed exchange rate regime. The idea that China could stop buying Treasuries in a fit of pique is therefore a myth, he suggests.
If China runs a current account surplus, it must accumulate net foreign claims by exactly that amount, and the entity against which it accumulates those claims (adjusting for actions by other players within the balance of payments) ultimately must run the corresponding current account deficit. And as long as China ran the largest current account surplus ever recorded as a share of global GDP, and the US the largest current account deficit ever recorded, and especially since China also ran an additional capital account surplus (i.e. other non-PBoC agents ran a net capital inflow), it was almost impossible for the PBoC to do anything but buy US dollar assets. Given the sheer amounts, a substantial portion of these assets had inevitably to be USG bonds. This was not a discretionary lending decision. It is the automatic consequence of China's currency regime, in which it pegs the RMB to a foreign currency, in this case the dollar. Why? Because when the PBoC decides on the level of the RMB against the dollar, it does not do so by passing a law, and making it a capital crime for anyone to trade at a different price. What it does is far simpler. It offers to buy or sell unlimited amounts of RMB against the dollar at the desired price.
10. Totally irrelevant video - A cat thinks there's another cat in the reflection on the rubbish bin. Strangely compelling.
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