Top 10 at 10: Does NZ equal Iceland?; BNZ's pigs due for slaughter?; China says 'buy gold'; Dilberts

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 your suggestions for Tuesday's Top 10 at 10 to bernard.hickey@interest.co.nz We have no approval forms at interest.co.nz... 1. Brian Gaynor makes some interesting comparisons between New Zealand and Iceland in his NZHerald column. He rightly points out that the big difference between the two is our banks are backed by the Australian government and savings system. Phew. We're safe....at least until the Australians demand control of our economy, or at least our banking system and currency, as the quid pro quo.

Iceland seems like a long way away as far as New Zealand is concerned but the latest 109-page OECD Economic Survey on the country, which was released this week, contains a large number of tables and graphs where New Zealand features prominently. These are on overseas debt, net international liabilities, house price growth to disposable income, personal debt and financial leverage. In nearly all of these tables and graphs we rank just ahead of or just behind Iceland. However there is a big difference between Iceland and New Zealand. Iceland's major banks were owned by local high-risk entrepreneurs whereas our major banks are substantial Australian-owned organisations. However, New Zealand shouldn't be complacent about its large net international liabilities, banking sector and regulatory structure as Moody's gave the three major Icelandic banks AAA credit ratings at the beginning of 2007 yet 18 months later they all collapsed with ruinous consequences for Iceland's economy.

2. Are the pigs' days numbered? BNZ has just dumped advertising agency Y&R, which was behind its BNZ's cute little pigs campaign and replaced it with Sugar, NBR reported. Sugar did the TSB's ads rubbishing Australian-owned banks. The change came after the exit of BNZ's Head of Marketing and Strategy Blair Vernon.

Y&R head Jon Ramage is disappointed to lose the account. "When you get a change of leadership and direction in an organisation, then change happens," Mr Ramage said. "We happen to be a casualty of that change."

3. The Sunday Star Times' Tim Hunter has an excellent piece on a self-styled 'jackal' called John Lacey who has campaigned for Strategic Finance to be put into receivership.

"I'm very proud that a humble man like me can make a bit of a difference," he told the Sunday Star-Times. "I want the truth out and the rules changed so this can never happen again." And with a typically colourful turn of phrase, he added: "They've learned from their mistakes they shouldn't have taken on the jackal. They're ready to dance with me under a pale blue moon. It's the day of the jackal remember that. And my birthday's tomorrow."

4. Ambrose Evans-Pritchard writes an excellent piece in the Daily Telegraph about the dangers of debt deflation and how the world might extricate itself from this mess. HT AndrewJ

There are three ways out of our mess. We can pursue 1930s liquidation that purges debt through mass default. Such Calvinist destruction cannot be imposed on a modern democracy. We can devalue debt by deliberate inflation. This will backfire as bond vigilantes boycott government debt - unless rigged by capital controls or "administrative measures". You see where this leads. Or we can try to right the ship by paying down our debts, very slowly, by sweat and toil, navigating a treacherous course between the Scylla and Charybdis of the twin-flations, for as long as it takes. This is the only responsible course left we as we face the devastating consequences of our own credit delusions. Are we up it?

5. Christopher at The Motley Fool has compiled all the reasons why the gold price is rising in this piece. He focuses a lot on China, including this one below I hadn't seen before. HT Troy Barsten via email

China is actively encouraging its 1.3 billion citizens to invest in precious metals. I have viewed excerpts from state television touting the extraordinary relative value of silver to gold given the large deviation from the historical ratio between prices of the two metals. Because gold and silver are surprisingly small physical markets, even a minor uptick in investment demand could fuel sizeable price increases.

6. This is a great piece in the WallStJournal's (still freely available) opinion section with an interview with the former head of America's General Accountability Office under Clinton. He warns of America's looming fiscal crisis. Someone should send this to Hu Jintao.

"We suffer from a fiscal cancer," he tells a meeting of the National Taxpayers Union, the nation's oldest anti-tax lobby. "Our off balance sheet obligations associated with Social Security and Medicare put us in a $56 trillion financial hole"”and that's before the recession was officially declared last year. America now owes more than Americans are worth"”and the gap is growing!" "We have four deficits: a budget deficit, a savings deficit, a value-of-the-dollar deficit and a leadership deficit," he tells one group. "We are treating the symptoms of those deficits, but not the disease."

7. Ambrose Evans Pritchard also has an interesting piece from a conference in Italy where a senior Chinese official is nervous about America's borrow and spend policy. The official virtually tells the rest of the world to buy gold.

Cheng Siwei, former vice-chairman of the Standing Committee and now head of China's green energy drive, said Beijing was dismayed by the Fed's recourse to "credit easing". "We hope there will be a change in monetary policy as soon as they have positive growth again," he said at the Ambrosetti Workshop, a policy gathering on Lake Como. "If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," he said. China's reserves are more than "“ $2 trillion, the world's largest. "Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets," he added.

8. Paul Krugman at the New York Times asks the question: "How did economists get it so wrong?". He thinks economists should embrace Keynes all over again. I disagree, but the debate is worth having. HT Arie Dekker via email.

Few economists saw our current crisis coming, but this predictive failure was the least of the field's problems. More important was the profession's blindness to the very possibility of catastrophic failures in a market economy. During the golden years, financial economists came to believe that markets were inherently stable "” indeed, that stocks and other assets were always priced just right. There was nothing in the prevailing models suggesting the possibility of the kind of collapse that happened last year.

9. The New York Times Magazine has an excellent piece on the Self Storage industry, which boomed during the days of mega consumption. All the stuff had to be put somewhere. What happens now? We have similar issues in New Zealand I fear. HT Felix Salmon

After a monumental building boom, the United States now has 2.3 billion square feet of self-storage space. (The Self Storage Association notes that, with more than seven square feet for every man, woman and child, it's now "physically possible that every American could stand "” all at the same time "” under the total canopy of self-storage roofing.") According to the Self Storage Association, one out of every 10 households in the country rents a unit, making facilities like Statewide among our last national commons "” places where nearly every conceivable kind of American still goes. But the collapsing economy created an opportunity, and in some cases an ultimatum, for Americans to reassess the raft of obligations and the loads of stuff we accumulated before things went wrong. We've been making difficult decisions, and for a lot of us, that has involved rolling up the door of a storage unit and carting property in or out. The storage industry's expansion in the first flush years of this decade was both enabled by, and helped enable, the extreme consumption that defined America then. The people coming through the gates now are defining who we will be when this turmoil is over.

10. Vitaliy Katsenelson at Zerohedge puts the case against gold in this piece.

Here is a trivia question for you: what country is the seventh largest holder of gold, ahead of China, Japan, and Switzerland? Well, it was a trick question: the seventh largest holder of gold is not a country, it is an exchange-traded fund, GLD. Yes, a fund that is not even five years old is the seventh largest holder of physical gold in the whole world, even ahead of mighty China. When investors buy GLD, GLD in turn has to go out and buy gold, driving up the price. This raises a little question: who will be buying this gold from GLD when investors decide to sell it? Gold is one of those weird assets where nobody knows what it is really worth. You cannot run discounted cash-flow analysis to value it "“ it has no cash flows. It is an asset where perception and reality are deeply intertwined.