Top 10 at 10; Gaynor on NZ's unbalanced economy; Environmentalist not so sceptical; Capital gains tax; Dilberts; Daily Show

Here's my Top 10 links from around the Internet at 10am. I welcome your additions in the comments below or please send suggestions for tomorrow's Top 10 at 10 to bernard.hickey@interest.co.nz. We do not have a policy of creating toxic blobs (or blogs) at interest.co.nz 1. Brian Gaynor talks in his NZHerald column on Saturday about how unbalanced the New Zealand economy has become thanks to heavy foreign borrowing for property investment pushing up the New Zealand dollar and strangling the New Zealand dollar. He makes the point that bank funding for businesses is more difficult and expensive to find than funding for housing. Readers of this blog won't find this too surprising, but Gaynor makes some strong points with a very useful table

The clear message from these figures is that house funding, which is mainly derived from the banks, is in plentiful supply but funding for businesses, which also comes from banks or through equity and bond issues, is much more difficult to obtain. sustained economic recovery can only be achieved through the tradeable sector yet data indicates that the non-tradeable sector, particularly housing, is showing early signs of leading the recovery. Unless more funding is made available to business, particularly in the tradeable sector, then we will be back on the same old household debt/housing boom/unbalanced growth bandwagon. This lopsided growth is unsustainable and will inevitably lead to continued low GDP growth and another recession in the not too distant future.

Sound familiar? 2. Garry Sheeran at the Sunday Star Times reports that Auckland University tax policy and law professor Craig Elliffe has estimated a capital gains tax could raise NZ$2.7 billion and be much fairer to families than a higher GST.

"People pay taxes because they believe other people pay taxes," said Elliffe. Under New Zealand's present tax system, it was wrong that a salary earner would pay $38,000 tax on a $100,000 salary, while a $100,000 realised property gain would pay no tax. "The [tax] game we have been playing as a country is Monopoly, and the dice have been loaded in favour of the knowledgeable and/or well advised," he said.

3. Rob Stock at the Sunday Star Times asks some searching questions of Money Managers about how involved Doug Somers Edgar really is. It seems he is not as disconnected as it has been suggested earlier... 4. More details about Allan Hubbard's investment in farming are revealed in this Greg Ninness piece in the Sunday Star Times, which also looks at many of the related party lending deals. There are some very interesting details.

Most of the related party lending in last year's accounts was to other companies within Southbury Group. But SCF also lends to other companies in which the Hubbards have an interest. Apart from Southbury's stake in Dairy Holdings, the Hubbards have stakes in 22 substantial rural properties with a combined land area of just over 14,000ha. They own 100% of seven of these properties (1565ha) and partial stakes ranging from 23% to 75% in the others. They also own stakes in a handful of commercial properties ranging from office buildings to coolstores. Most of these have a single mortgage to one or other of the major banks, but a couple have second mortgages to SCF. Hubbard said SCF would sometimes provide loans to the companies which own these investments when they were unable to secure additional funding from the banks. Moonshine Farms, an 829ha Canterbury property in which the Hubbards are listed as the largest shareholders with a 38% stake, has a second mortgage to SCF securing up to $15m. The security for this loan was increased from $3.84m in January last year.

5. It's official. The US Federal Reserve is effectively printing money by buying back bonds only just issued by the US government. ZeroHedge has the explanation here.

In a brilliant piece of investigative reporting, Chris Martenson (original article here) has uncovered that the Fed, merely a week after issuing $28 billion in 7 year bonds (which Zero Hedge discussed previously) via its puppet, the US Treasury, of which $10 billion ended up being purchased by primary dealers, has turned and bought 47% of the primary allocated bonds in Open Market Purchases. This is undisputed monetization removed simply via one primary dealer and less than 5 days of temporal separation in order to leave no easy trace. The crux of the matter for global financial markets right now is can the US government sell its bonds at its regular auctions. Last week they got away with, but it seems now only because the Federal Reserve intervened, albeit indirectly. The question is did the Fed implicitly tell the primary dealers they are merely holding the treasuries for a flip, and that it would acquire them immediately. Absent this $4.8 billion in effectively monetized bonds, what would the Bid To Cover have been for the primaries? Would this have been the second practically failed auction for USTs after the deplorable 5 year auction results a day prior? One wonders if there would have been 62% indirect interest in these bonds (which the day before had a measly 32.5% indirect bid) if the purchasers were aware of the Fed's immediate prompt monetization of a large part of the directs' balance. It is truly a sad state of affairs when the Fed has to manipulate public and media perception in this way, and has to cover up for the complete lack of interest in US Treasuries.

6. Bloomberg picks out its chart of the day showing the extraordinary level of debt in the US economy and points out some commentary that America faces a couple of lost decades.

The U.S. economy may be just as sluggish during the next 20 years as Japan's economy was in the last 20, according to Comstock Partners, a money manager founded and run by Charles Minter. Stimulus programs and a surging money supply aren't likely to "solve a problem of excess debt generation that resulted from greed and living way beyond our means," the firm wrote. The U.S. is headed for "a deleveraging period" in which the amount of so-called private debt, including consumer borrowing, collapses as government borrowing explodes, Comstock wrote. Assuming that private borrowers pay down debt at the same pace as they did in Japan after its 1980s economic bubble burst, the savings rate will climb to about 10 percent in 2018, the report said.

7. The IMF has calculated that the financial crisis might have cost 20% of global GDP, which works out at about US$11.9 trillion, the Telegraph reported.

The IMF calculations, produced ahead of the two-year anniversary of the crisis, underline the continually mounting cost. Most of the cash has been handed over by developed countries, for whom the bill has been $10.2 trillion, while developing countries have spent only $1.7 trillion − the majority of which is in central bank liquidity support for their stuttering financial sectors.

8. Private sector jobs growth in the United States has stalled in the last 10 years, this excellent piece by Michael Mandel in BusinessWeek points out. HT Americonomist  on Twitter. The chart is eye-opening. I wonder if it's the same here....

It's impossible to overstate how bad this is. Basically speaking, the private sector job machine has almost completely stalled over the past ten years. Most of the industries which had positive job growth over the past ten years were in the Health/Education/Government sector. In fact, financial job growth was nearly nonexistent once we take out the health insurers.

9. Here's my NZHerald blog post on how the government is still eating the economy.

All this employment and wage growth in the public sector has dragged on our national productivity. We should not be surprised when our GDP continues to lag. The public sector needs a big dose of salts and our Government needs to reform itself to encourage employment and wage growth in the private sector, where competition rather than lobbying decides wage growth levels.

10. Here's one a bit off the beaten path, but still interesting. Bjorn Lomborg, who wrote The Sceptical Environmentalist saying other things are more important than fixing greenhouse gases, has changed his mind and now wants a big deal at the Copenhagen conference later this year, the FT reported. The Kiwi angle here is that former TVNZ business journalist and Listener columnist David Young is now doing PR for Lomborg.

"If that disappoints some people who are sceptics, I am not the least bit unhappy. I hope to have more people enthused [in thinking about how to tackle climate change]," Lomborg said. He is concerned that the United Nations-led consensus that a climate treaty must focus on cuts in greenhouse gas emissions from rich countries is mistaken. "It's a costly way to achieve very little," he said. Instead, Mr Lomborg argues, there are cheaper ways of halting temperature rises. These include tackling sources of climate change other than carbon dioxide, such as methane and soot; investing in new tech nologies; adapting to the effects of climate change; planting more forests; and weighing up whether emissions cuts are cheaper to do now or later.

Here's Jon Stewart from the Daily Show on the Cash for Clunkers programme.