Top 10 at 10: US dollar collapse talk grows;'Fabulous crisis' for Aussie Big 4; Dilbert

Here are my top 10 links from around the Internet at 10am. I welcome your additions and comments in the comments below or please send me your suggestions for Wednesday's Top 10 at 10 to bernard.hickey@interest.co.nz We're done with our project... 1.Fall baby fall - Wolfgang Munchau from FT.com makes the case for a weak US dollar to boost its export sector and a strong euro to restrain European inflation. He points to some interesting ideas on current account deficits that New Zealand would definitely fail at its current run rates.

Exchange rates cannot solve the problem of global imbalances. They did not in the past. Reform of the global monetary system is necessary for sustained balance. I agree with the views of Fred Bergsten, director of the Peterson Institute for International Economics in Washington, that the world will ultimately have to move to maximum targets for current account imbalances. In a forthcoming article in Foreign Policy, he proposes a current account deficit ceiling of 3 per cent of gross domestic product for the US. He also argues that a reduced international role for the dollar would be in the best strategic interests of the US as continued imbalances would end up producing intolerable instability, no matter whether they are financed or not. Several proposals are floating around for how this could be achieved, for example the creation of special reserve baskets or the use of the International Monetary Fund's special drawing rights. I expect we will see neither but are moving towards a dual system in which the dollar and the euro act as the world's de facto reserve currencies.

2. Greenback grief -  Former US Treasury Deputy Secretary Roger Altman has a prescription to save the US dollar from collapsing. He paints a brutal picture and explains the inexorable pressure down on the US dollar. How much longer can US stocks hold up where they are? How soon before New Zealand has a parity party?

More poor economic data have put Washington in a nearly impossible fiscal position. The US economy requires more stimulus than provided by the original package passed in March. But the dismal deficit outlook poses a huge longer-term threat. Indeed, it is just a matter of time before global financial markets reject this fiscal trajectory. That could lead to a punishing dollar crisis. To avoid it, America's leaders should commit now and in detail to implement deficit reduction once the economy has strengthened. Vague promises will not work. For 2011 and beyond, the fiscal challenge is fearsome. A combination of prior tax cuts, years of high spending and a brutal recession have produced the worst budget conditions in 75 years. Through 2019, private forecasts predict deficits averaging $1,000bn a year. In 2019 the deficit would represent 6.5 per cent of GDP and be rising. Worse, national debt will hit nearly 85 per cent of GDP. Annual interest costs on it would exceed the US defence budget and the whole category of discretionary spending. The Treasury's annual borrowing, including refinancings, would average a breathtaking $4,000bn. All this occurs before theMedicare/Medicaid share of GDP explodes beyond 2019. This debt surge comes against a fragile backdrop. The national savings rate is essentially zero. Net borrowings are being supplied entirely by foreigners. Foreigners already hold half the national debt. Not only do we know, empirically, that massive deficits raise interest rates, cut private investment and depress standards of living. But there is no precedent for financial markets lending such amounts, over 10 years, at anywhere near current interest rates and exchange rates. Indeed, does anyone think that once recovery takes hold and private demand for capital strengthens, the Treasury will raise $4,000bn a year at below 4 per cent, as it is doing today?

3. Hard evidence - Here's detail from Bloomberg about how central banks are moving in euro and yen rather than US dollars.

Policy makers boosted foreign currency holdings by $413 billion last quarter, the most since at least 2003, to $7.3 trillion, according to data compiled by Bloomberg. Nations reporting currency breakdowns put 63 percent of the new cash into euros and yen in April, May and June, the latest Barclays Capital data show. That's the highest percentage in any quarter with more than an $80 billion increase. World leaders are acting on threats to dump the dollar while the Obama administration shows a willingness to tolerate a weaker currency in an effort to boost exports and the economy as long as it doesn't drive away the nation's creditors. The diversification signals that the currency won't rebound anytime soon after losing 10.3 percent on a trade-weighted basis the past six months, the biggest drop since 1991. "Global central banks are getting more serious about diversification, whereas in the past they used to just talk about it," said Steven Englander, a former Federal Reserve researcher who is now the chief U.S. currency strategist at Barclays in New York. "It looks like they are really backing away from the dollar."

4. Pound pounded - FTAlphaville looks in detail at the overnight action on the British pound, which is in dire straits, along with the British Government's fiscal outlook.

According to traders, the £16bn disposal plan has underlined once again just how bleak the outlook is for UK public finances. On top of that there is a report from the Centre for Economics and Business Research (CEBR), which says interest rates could stay at 0.5 per cent until 2011,  the GBK could fall below €1.o0 and extra £75bn of paper could be printed.

5. A fabulous crisis - Alan Kohler at BusinessSpectator reckons the big four Australian banks have had a 'fabulous financial crisis' and various government interventions have concreted in their advantage.

Australia's smaller banks and lenders are being crushed by the big four, which have had a fabulous crisis. Demand for home loans has fully recovered; margins have been maintained or expanded; the big four are totally dominating the markets for both deposits and mortgages; and government policy is discriminating in favour of them and against smaller banks. CBA and Westpac were allowed to buy BankWest and St George and become behemoths, something the ACCC now regrets, and the government's deposit guarantee actively discriminated against smaller banks, building societies and credit unions. The sole offsetting factor is the government instruction to the Australian Office of Financial Management (AOFM) to buy AAA-rated mortgage securities, "depending on market conditions". Christopher Joye has an excellent article this morning detailing how important this has been in providing liquidity to the smaller banks, but he also points that the decision to guarantee bank deposits just about killed the mortgage securities market at the same time.

6. Gold debate - Garry White at The Telegraph takes a look at the longer term outlook for the gold price and is not convinced it can march ever higher. However, he has a few interesting historical examples of the longevity of gold vs Fiat (printed) money systems.

Is gold a commodity or a currency? It certainly fits the definition of a commodity: A substance of value, with a uniform quality produced by many different producers. However, unlike other commodities it has relatively few uses other than as an ornament. Copper is used in wiring, iron is used to manufacture steel but gold's main uses are "“ and always have been "“ as a store of value and as a way to demonstrate personal wealth.

Speak to any American libertarian about gold and they will talk at length about the evils of fiat money. They will tell you about how the Roman denarius, a silver coin, was diluted from 100pc silver to 84pc, then 43pc and finally to 0.05pc until nobody would take the coin as a means of exchange because it had no value. They will utter eyebrow-raising polemics about China's "flying money" and how Kublai Khan printed a currency that cost him nothing at all - becoming the father of all the fiat money in the world today.

You may then be treated to the story of how Scottish economist John Law became the most hated man in France. He had to flee to Italy after introducing a fiat currency that almost brought the country to its knees. History shows that fiat money loves failure.

7. Walkaways - There's a new name for 'jingle mail' in the United States where home owners with a government loan just move out in the middle of the night and leave the keys in the mail box, Time reports.

In West Texas, largely because of walkaways, the Federal Government currently has 1,800 repossessed houses on its hands. In seven South Florida counties, walkaways have abandoned 3,000 FHA-guaranteed homes in the past twelve months.

8. Zombie problem - Jeff Harding from The Daily Capitalist posts on ZeroHedge about the similarities between Japan and the United States in the wake of Japan's real estate bubble (late 1980s) and America's real estate bubble (mid 2000s). He doesn't see America following the classic Japanese stagnation problem, but he has some interesting insights.

One might ask, with all this faith in Keynesian policies, why aren't they working? Why are we still having these problems? And, why aren't we doing something different than Japan? The reason the economy is not responding is that there is too much bad debt sitting on the books of lenders and companies. Most of it is related to the real estate bubble: home mortgages, commercial real estate loans, consumer debt, and the derivatives and other products that sit on top of it. Banks are afraid to lend or foreclose on bad debt unless they are forced to because they know they will need to come up with additional Tier 1 capital because their capital base is insufficient. Because credit is tight, home owners are finding it difficult to refinance their loans because of stricter underwriting standards while home values are falling. CRE loans are even more difficult because commercial financing has largely dried up for troubled projects. And, consumers aren't borrowing because they are (i) afraid of their economic future, and (ii) the big spenders, the Boomers, don't have enough saved up to retire, so savings are going up. This is why banks aren't lending. As a result, money supply is falling. This will continue until the debt situation is resolved, but the government is doing everything it can to frustrate these corrections because they know the cure (tight money) will cause more banks and business to fail. But unless the debt is removed, liquidated, or paid, banks will remain zombies.

9. Here we go -  Eastern Europe is on the verge of toppling, causing chaos in the European banking system. Here's another sign. Romania is set to oust its minority government later this week, Reuters reports.

Romania's parliament looks set to topple the minority government on Tuesday in a no-confidence vote ahead of a November presidential election and raises fresh concerns over the country's IMF aid. The centrist and leftist opposition have called Tuesday's vote after Prime Minister Emil Boc's coalition cabinet split earlier this month, plunging the country into political crisis at a time when it is trying to fight against recession. The opposition is keen to lay the blame for rising unemployment and falling wages on the ruling Democrat-Liberal Party, closely allied to President Traian Basescu, now frontrunner in the Nov. 22 election. A major overhaul of Romania's creaking and complex pension system has to be introduced by the end of the year and economists say the government risks overshooting the IMF's budget deficit target of 7.3 percent of gross domestic product. Regional markets are on high alert. Bucharest's coalition collapse battered the leu and dragged down currencies in neighbouring countries. Dealers say markets also fear that political turmoil in Poland may return and weaken currencies.

10. Real bank analysis - Here's contrarian bank analyst Christopher Whalen talking on CNBC about the upcoming US bank results, including worries about commercial property loans and off balance sheet vehicles.