Top 10 at 10: Bernanke's sleight of hand; China's bridge demolition scam

Here's my Top 10 links from around the Internet at 10 am. I welcome your additions in the comments below or please send your suggestions for Friday's Top 10 at 10. We like everything perfect and fast at interest.co.nz.... 1. New Zealand's Australian-owned banks aren't faring as well as the Australian banks in Australia, according to a report on TV3 about a PwC survey on banking. HT David Nind by email.

The first New Zealand Banking Perspectives report looked at Westpac, ASB, ANZ National, BNZ and Kiwibank and concluded they have collectively experienced a 22 percent fall in profit and quadrupling of bad debts in their first half periods from a year ago. Banks across the Tasman experienced a 5.6 percent decrease in first-half earnings from the same period last year. "This difference between New Zealand and Australian banks is due to lower growth in net interest income, as well as a higher percentage of asset write-offs and bad debt expense in New Zealand," said financial services partner Sam Shuttleworth.

2. Andrew Patterson from RadioLive, who is a good man I work with regularly, has written a blog at TV3 questioning the rally in global stockmarkets. He rightly picks out the US Treasury auctions as the weak point in the American plan to borrow and spend its way out of a problem caused by too much borrowing and spending.

The US is expected to issue $US2 TRILLION in new debt this fiscal year and a further $1.4 TRILLION in the next fiscal year to fund its stimulus programme and other financial bailouts. It's expected that borrowing will make up HALF of total U.S. federal spending this year. Just think about that for a minute. The U.S. plans to raise $3.4 TRILLION in debt in the next 18 months. How on earth does it plan to service that debt? But the real problem here is that the rest of the world doesn't have $3.4 TRILLION in spare cash lying around. And even if it did, would it seriously consider lending it to the U.S. knowing what we do! So this raises the very real possibility that in the near term we could well see a U.S. Treasury auction fail. Of course, the U.S. Federal Reserve will be forced to step up to the plate but how will the markets react to that news when they eventually find out that the Fed is having to purchase its own debt with funds that don't actually exist in the first place. That is, it's borrowing to service its own debt. It's a bit like getting a new credit card to pay for the debt owing on the last one. Eventually, you run out of options and it's game over.

3. Here is a broad-ranging analysis from Rob Kirby, a newsletter writer from Canada. He pulls together a lot of the latest evidence on the US Federal Reserve's money printing and concludes the recent stock market rally is a Fed-engineered mirage to push up bank share prices. He also predicts hyperinflation when foreigners lose confidence in the US dollar. HT Wayne Loke via email

So, you see folks, all the talk we've heard of "green-shoots" and "recovery" are little more than high-stakes sleight of hand on the part of Mr. Bernanke's Federal Reserve and his captive, agent-banks.

4. Brian Fallow at the NZHerald has a usefully sceptical analysis of the costs to households of New Zealand's greenhouse gas commitments.

Certainly the off-the-shelf answer helpfully provided by the Government's spin machine - $26 a week at the mid-point of the target range - needs to be treated with a whole lot of caution. It is based on some general equilibrium economic modelling done for the Ministry for the Environment by Infometrics and the New Zealand Institute of Economic Research, the fruits of which have been pretty systematically misunderstood and misused. You might say they provide the politicians and lobbyists with a set of screwdrivers which then get used as chisels - or weapons. The biggest uncertainty in all this is what level of ambition about tackling global climate change will emerge from the big United Nations conference coming up in Copenhagen in December, intended to thrash out a successor agreement to that reached in Kyoto 12 years ago.

5. Chris Barton, also at the NZHerald, writes a grumpy and good column about 'stupid-uty' in the climate change debate.

There is still plenty of stuff to argue about - like what is the best way forward, how to cut emissions and by how much. But to deny that climate change is happening really is stupi-duty.

6. This is a cracker from Venkatesan Vembu at DNA in Hong Kong. He details comments from a Chinese official, Wang Yang, explaining just how dodgy China's GDP figures are. HT Rolfe Winkler at Reuters.

"Some of our GDP data sure looks rosy," Wang told party officials. "But they do not amount to growth of social wealth; in fact, social resources are beingwasted to show GDP growth." For instance, he said, provincial party officials build a bridge, which contributes to GDP; they then "dismantle" and rebuild the bridge, each time contributing to GDP. "We may have boosted our GDP this way, but this is a huge waste of social resources." Likewise, he said, some regional governments registered GDP growth by encouraging "polluting industries", and then showed even higher growth by cleaning up the pollution. Wang said that such practices, which went against "the laws of a market economy", were causing him deep disquiet. "Amidst the economic downturn, when everyone is eager to show 'rosy' numbers, all manner of backward productive forces are being revived," he said.

7. Rolfe Winkler at Reuters refers to some fascinating research from John Rubino into the way governments have over time borrowed and spent their way out of and into trouble. He quotes a great paragraph from the full document below.

Worrying about a government destroying its currency or confiscating its citizens' wealth may seem a bit paranoid"”until you read some financial history. The sad fact is that over the centuries, time and again, governments have spent and borrowed themselves into a box and forced their citizens to bail them out. They debase the currency (which is a tax on savers), impose new taxes, or simply take whatever assets are most accessible. To keep their prey from escaping, they impose various kinds of capital controls, including restrictions on the movement of wealth or price increases. cfm.v20.n4

8. The Americans have learnt nothing. Remember the stunning growth and implosion of Fannie Mae and Freddie Mac, the government backed mortgage lenders? Now it seems Ginnie Mae and FHA, which are two of the surviving government backed mortgage providers, are doing the same thing all over again. This Op-Ed in the WSJ is excellent. Read it and grind your teeth. Certainly don't trust this market rebound and the 'green shoots' brigade.

Only last week, Ginnie announced that it issued a monthly record of $43 billion in mortgage-backed securities in June. Ginnie Mae President Joseph Murin sounded almost giddy as he cheered this "phenomenal growth." Ginnie Mae's mortgage exposure is expected to top $1 trillion by the end of next year"”or far more than double the dollar amount of 2007. Herein lies the problem. The FHA's standard insurance program today is notoriously lax. It backs low downpayment loans, to buyers who often have below-average to poor credit ratings, and with almost no oversight to protect against fraud. Sound familiar? This is called subprime lending"”the same financial roulette that busted Fannie, Freddie and large mortgage houses like Countrywide Financial.

9. Mish at Global Economic Analysis reckons America's social safety net is disguising a depression.

The only reason it is not more readily visible is people are living in foreclosed houses unable or unwilling to pay their mortgage, one in nine living in the US is on food stamps, and unemployment insurance has been extended twice. Congress is now debating extending it a third time. If Congress does not act 500,000 Will Exhaust Unemployment Benefits by September, 1.5 Million by Year-end. Although the official unememployment rate is a mere 9.5% alternative measures show it is over 16%. Moreover, an unprecedented 4.4 million workers have been unemployed and looking for work for 26 weeks or longer. Please see Jobs Contract 19th Straight Month and US Payrolls Less Than Meets The Eye for details about jobs.

In simple terms, more social safety nets are in place now than during the great depression.

10. We're all internet users. Google has created an opt-out village for those who want to keep their information private. In the village there is no chance of google reading your emails, the Onion reports. (It's not true by the way.) Google Opt Out Feature Lets Users Protect Privacy By Moving To Remote Village