Top 10 at 10: Australia's housing set to fall off cliff; China's amazing export boom; Franco-German naked crackdown; Dilbert

Here are my Top 10 links from around the Internet at 10 past midnight. I wanted to have a fresh one out of the way before the Monetary Policy Statement. I welcome your additions and comments below or please send suggestions for Friday's Top 10 at 10 via email to bernard.hickey@interest.co.nz

1.The Keynesian endpoint - The world's largest bond fund manager reckons the world's developed economies have run out of options to restart their economies, Bloomberg reports  HT Gertraud via email.

Nations have reached a “Keynesian endpoint” as exhausted balance sheets leave policy makers with few options to bolster economic growth, according to Anthony Crescenzi, an investor at Pacific Investment Management Co., the world’s largest bond-fund manager.

“Time, devaluations, and debt restructurings might be the only way out for many nations,” Crescenzi wrote in an e-mailed note titled “Keynesian Endpoint” that referenced the Great Depression era economist John Maynard Keynes. Debt-fueled spending programs aimed at combating the global financial crisis of 2008 are among policy tools now “being seen as a magic elixir that has morphed into poison.”

 2. Enough S&M already - Martin Wolf opines at FT.com that the fashion for fiscal prudence is dangerous and could tip the developed world into a deflationary spiral similar to the ones triggered in Japan in 1997 and the United States in 1937 when governments tightened too early. It's hard to know if Germany and the UK have a choice. The bond vigilantes (see above) are out to get them. The only alternative is quantitative easing and beggar they neighbour devaluations, unless of course all the major central banks print together. No wonder the gold price keeps hitting new records.

Premature fiscal tightening is, warns experience, as big a danger as delayed tightening would be. There are no certainties here. The world economy – or at least that of the advanced countries – remains disturbingly fragile. Only those who believe the economy is a morality play, in which those they deem wicked should suffer punishment, would enjoy that painful result.

3. 'We can turn back the tide' - France and Germany have announced joint plans to restrict naked short selling of Credit Default Swaps, some stocks and government debt, Bloomberg reported. What a bunch of plonkers. Trying to stop markets from beating them up is a waste of time. The last time Germany did this it created the flash crash.

“Since the international community is unanimously committed to leaving no market, no product, no actor or territory outside regulation and supervision, the return of strong volatility in the markets makes it necessary to question certain financial methods and certain products such as naked short-selling and credit default swaps,” they said.

The Franco-German initiative follows a ban imposed by Germany last month on naked sovereign credit-default-swaps, a step sparking criticism that a move by a single nation would be ineffective. The move caused stocks around the world to drop and the euro traded near a four-year low against the dollar.

4. An oath bubble - Michael Lewis writes at Bloomberg about an apparent surge in do-gooding oaths from Harvard graduates. He discovered a few of the real oaths doing the rounds... John Key worked for Merrill Lynch...

Best-in-Class -- The Goldman Sachs Oath: We pledge not to call what we do “God’s work,” even though it is. We pledge to meet and even get to know ordinary people who do not work for Goldman Sachs, so that we might better understand their irrational behavior, and exploit it only when necessary. We pledge to create Wall Street’s best-in-class oath.

The Morgan Stanley Oath: We pledge to stop trying to do whatever Goldman Sachs is doing. We, too, pledge to create Wall Street’s best-in-class oath.

The Merrill Lynch Oath: We’re just grateful to be asked if we have an oath. We do! We pledge to help the approximately 74,322 American dentists forget that we sold them auction-rate securities and equity tranches of subprime backed CDOs. We also pledge that, the next time Wall Street plays crack the whip, we will decline Goldman Sachs’s offer to play the role of the little fat kid who gets catapulted through the second- story window of the house across the street.

5. The amazing China - This is hard to believe, but it's moving markets, the Sydney Morning Herald reported. Chinese exports boomed in May.

Chinese exports in May grew about 50 per cent from a year earlier, according to sources, a figure that blew past expectations and fuelled a big jump in domestic stocks. The key Chinese stock index, which had been in negative territory, climbed nearly 3 per cent as the strong export growth reassured investors who have been worried that a double-dip in the world economy would weigh on China.

Exports, which are scheduled to be reported as part of broader trade data on Thursday, were expected to rise 32.0 percent year-on-year in May after recording a 30.5 per cent pace in April.

6. Australia's housing cliff - Home lending slumped in May to a 9 year low after the five hikes in the Australian cash rate since October pushed variable mortgage rates over the 7.5% pain barrier, AAP reports. This chart below in SMH.com.au is a cracker. Any idea on what might happen to house prices there next? 

Nomura chief economist Stephen Roberts said demand for new housing loans continued to wane as the prospect of higher interest rates deterred potential buyers. ‘‘We know housing affordability has deteriorated sharply for many buyers,’’ Mr Roberts said.

‘‘You would be expecting this style of behaviour and you would not expect a change anytime soon.’’ He said the fall in April was a soft indicator for housing, which would flow through to other sectors of the economy. ‘‘It (the number of new home loans) has fallen 26 per cent since its recent peak (in June 2009),’’ Mr Roberts said.

‘‘It is very much a soft indication for housing. ‘‘With a lag, you would expect these numbers to flow through to building approvals and housing starts.’’

7. Madre de Dios - Some of the smaller Spanish banks are being frozen out on the Interbank lending markets, FTAlphaville reports a Spanish newspaper as saying. 

“The worst thing is that a week ago, coinciding with Fitch’s downgrade of three Valencian entities – Bancaja, CAM and Banco de Valencia – Spanish bank Banco Sabadell suffered a heavy penalty on the interbank market because of the mistrust generated by the sovereign. But it’s something we’ve paid. A high price – to 1%, 70 basis points above the average in Europe, but there was some movement. Now, no foreign entity in the interbank market is funding us,” said another executive at a middle-level bank. The truth is that the penalisation of Spanish banks is so high that they cannot enter.

“For several weeks no issues, even with a state guarantee. Neither Santander or BBVA, banks acknowledged as solvent, may place bonds. Even the Catalan government last week could not bring off an issue and had to withdraw. It’s happening throughout Europe, but the situation is more serious in Spain, “says another manager.

8. A must read from the master - Paul Volcker was the last great US Federal Reserve Chairman. He broke the back of inflation in the early 1980s and is an occasional adviser now to Obama. Unfortunately he has been squeezed out of Obama's inner circle by Tim Geithner and Larry Summers. But he still has the passion to fix things and doesn't hold back in this must-read piece in the New York Review of Books.

Has the contribution of the modern world of finance to economic growth become so critical as to support remuneration to its participants beyond any earlier experience and expectations? Does the past profitability of and the value added by the financial industry really now justify profits amounting to as much as 35 to 40 percent of all profits by all US corporations?

Can the truly enormous rise in the use of derivatives, complicated options, and highly structured financial instruments really have made a parallel contribution to economic efficiency? If so, does analysis of economic growth and productivity over the past decade or so indicate visible acceleration of growth or benefits flowing down to the average American worker who even before the crisis had enjoyed no increase in real income?

There was one great growth industry. Private debt relative to GDP nearly tripled in thirty years. Credit default swaps, invented little more than a decade ago, soared at their peak to a US$60 trillion market, exceeding by a large multiple the amount of the underlying credits potentially hedged against default. Add to those specifics the opacity that accompanied the enormous complexity of such transactions.

The nature and depth of the financial crisis is forcing us to reconsider some of the basic tenets of financial theory. To my way of thinking, that is both necessary and promising in pointing toward useful reform.

9. Just too much debt - US public debt will rise over 100% of GDP by around 2015, the US Treasury has forecast, Reuters reported. 100% is often seen as a particularly dangerous moment where a 'Minsky moment' is a risk, where a debt spiral can overwhelm the borrower. 

The report that was sent to lawmakers Friday night with no fanfare said the ratio of debt to the gross domestic product would rise to 102 percent by 2015 from 93 percent this year.

"The president's economic experts say a 1 percent increase in GDP can create almost 1 million jobs, and that 1 percent is what experts think we are losing because of the debt's massive drag on our economy," said Republican Representative Dave Camp, who publicized the report.

10. Totally irrelevant video of a World cup goal - I'll be running a few of these. It's that time of the (4) year (s). Dennis Bergkamp does the business here in 1998 against Argentina. Just beautiful. The commentator has a heart attack.