Thursday's Top 10 with NZ Mint: No Hubbard report...yet; US extend and pretend; 'Death to money printers'; Roubini's rock and a hard place; Dilbert

Here are my Top 10 links from around the Internet at 10 past 11 am, brought to you in association with New Zealand Mint for your lunchtime reading pleasure.

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.

I'll pop any surplus suggestions I get into the comment stream under the Top 10.

1. No cabinet briefing - The Serious Fraud Office's (SFO) Adam Feeley has told BusinessDay that he hasn't even seen a report on Allan Hubbard's Aorangi Securities and has definitely not briefed cabinet.

Yesterday the NZHerald appeared to jump the gun in saying the cabinet was preparing to be embarrassed by the SFO finding its probe into Hubbard was a fizzer.

Adam Feeley seems pretty grumpy that the government want to declare everything over.

National is taking plenty of political heat in Canterbury on this.

We need to wait for the report.

Mr Feeley said there was "no briefing to Cabinet" by his office and he knew nothing about suggestions that there had been.

"I don't have a preliminary report myself. I don't see how we can provide a briefing on a report which doesn't exist." But he refused to comment on whether the SFO had briefed individual ministers, including SFO Minister Judith Collins.

Any suggestion that the SFO had already formed a view on the outcome of the investigation was "utterly wrong". It is expected to consider a preliminary report next week on its investigation into Aorangi Securities. The Government seized control of Mr Hubbard's finances on June 20 after a recommendation from the Securities Commission.

2. The moment of truth - Kevin R McCullough, a hedge fund manager, has written at Fortune that Americans must face up to their high debts and recognise they can't borrow and deficit-spend their way back to prosperity.

Americans should prepare for decades of low returns and slow growth as their economy deleverages. There seems little else to do.

Despite the many differences between Japan and the US, there is one similarity that continues to matter most in the risk management model my colleagues and I use at Hedgeye, our research firm -- debt as a percentage of GDP. Now that the US can't cut interest rates any lower, the only option left on the table is what the Fed just announced it would start doing -- buying Treasury debt.

And that could lead the country to the brink of collapse: According to economists Carmen Reinhart & Ken Rogoff, whose views we share, crossing the 90% debt/GDP threshold is the equivalent of crossing the proverbial Rubicon of economic growth. It's a point from which it's almost impossible to return.

Lest our doom and gloom seem built entirely on technical measurements, what they boil down to is actually quite simple -- an idea about our country which dates back to 1835. Alexis De Tocqueville, author of Democracy in America, which was published that year, seemed to warn of this day when he wrote: "The American Republic will endure until the day Congress discovers that it can bribe the public with the public's money."

3. More extend and pretend - Zero interest loans will be offered by the US government to those in low income areas, Bloomberg reports.

Under the new US$1 billion program, the Department of Housing and Urban Development will offer loans of up to US$50,000 to borrowers “in hard hit local areas” to make mortgage, tax and insurance payments for as long as two years, HUD said today in a statement.

The Treasury Department will also offer as much as US$2 billion in aid under an existing program for 17 states and the District of Columbia, according to the news release.

4. A decade long plateau - Maybe the United States has already been in a decade of stagnation and didn't know it because it was disguised by debt-driven consumption.This chart from the Economist suggests America has actually been in the doledrums for some time.

Consider the chart, which captures non-farm employment since 1939: that's six decades of steady increase, followed by a decade-long plateau.

And over that last decade, the American population has grown by over 30 million people. Some of that labour force growth is offset by increased retirements as the population ages. But not nearly enough for zero net employment growth to be an acceptable outcome.

5. Chinese consumption - Michael Pettis, an independent economist in Beijing, is always worth reading, even if it takes a long time. He is a close and reliable watcher of the macroeconomics of China and the rest of the world. He is particularly focused on whether China can create a consumption engine to match its production engine. The answer seems to be not just yet.

This is crucial because without China consuming some stuff, the rest of the world will struggle to really grow. The world can't go on just buying China's stuff.

At some stage China has to start buying the world's stuff, and not just its raw materials.

Pettis makes lots of good points and it's well worth a read. He is sceptical about China's ability to turn from a producer into a consumer quickly, partly because the household share of national income is so low.

Chinese households are happy to consume, but they own such a small share of total national income that their consumption is necessarily also a small share of national income. And just as the household share of national income has declined dramatically in the past decade, so has household consumption. This isn’t to say households are getting poorer.

On the contrary, they are getting richer, but they are getting richer at a much slower speed than the country overall, which means their share of total income is declining.

The point, then, is that if we want to increase the consumption share, we shouldn’t waste time and money trying to create additional incentives for consumption, to tinker with subsidies and taxes, to advertise more, or to change cultural habits. What is needed is a substantial increase in the share of national income that households take home. Give them more money, and they will spend it.

6. Why rising Chinese wages is a good thing - Patrick Chovanec is also worth watching as a China Watcher. He says the fears about rising Chinese wages breaking the Chinese export model are misplaced.

The bulk of foreign firms in China are now looking to produce goods for the domestic market rather than purely for export. As Chinese workers come to command higher wages, their buying power as consumers grows, making the rationale for foreign companies to be in China stronger rather than weaker.

Nearly a hundred years ago, the US found itself at a remarkably similar juncture. The 1920 census was the first to show a majority of Americans living in the city instead of on the farm.

When, in 1914, Henry Ford announced he was going to pay his assembly line workers US$5 a day - twice the going rate - critics predicted he would go bankrupt. In fact, by paying higher wages, Ford was able to reduce employee turnover, raise productivity, and create a new class of consumers. In the US then as in China now, the cost of doing business was increasing. But the rewards increase as well.  

7. America's going dark - Paul Krugman is in a dark frame of mind here at the New York Times. Literally. He would like the government to fix it. With someone's money. Or maybe just money magicked out of nowhere.

The lights are going out all over America — literally. Colorado Springs has made headlines with its desperate attempt to save money by turning off a third of its streetlights, but similar things are either happening or being contemplated across the nation, from Philadelphia to Fresno.

Meanwhile, a country that once amazed the world with its visionary investments in transportation, from the Erie Canal to the Interstate Highway System, is now in the process of unpaving itself: in a number of states, local governments are breaking up roads they can no longer afford to maintain, and returning them to gravel.

So the end result of the long campaign against government is that we’ve taken a disastrously wrong turn. America is now on the unlit, unpaved road to nowhere.

8. 'Death to the money printers' - The debate over quantitative easing in America and all around the world is intense. Note the gold price's rise and all the talk about money printing. Here Zerohedge brings the debate right back to the advice from America's founding fathers.

In light of the US Central Bank’s (I refuse to use their misleading self-anointed US Federal Reserve moniker) most recent grandstanding policy decision that has been referred to as "QE light" that precedes the inevitable QE2 launch sometime in the not so distant future, I present an open challenge to Paul Krugman and all like minded economists, Nobel prize winning or not, that support the monetary policy of dollar debasement. This will be a straightforward challenge issued by our Founding Fathers, in particular the first US Treasury Secretary, Alexander Hamilton, who scripted the US Coinage Act of 1792.

The one question I want to see Mr. Krugman and his supporters answer is this: “If monetary debasement can truly create economic recovery, why did our Founding Fathers establish, in the US Coinage Act of 1792, that any persons discovered to be deliberately debasing US money ‘shall be guilty of felony and shall be punished by death’?”

Note that the punishment was not imprisonment, not even hard labor, but death. Why did our Founding Fathers, who had just gained freedom from the draconian monetary policies of the British monarch King George through the American Revolution and the Treaty of Paris in 1783 deem that monetary stability could not be separated from the conditions of freedom?

Why did they deem the act of monetary debasement so insidious that anyone found guilty of deliberately debasing US money would not be imprisoned but should be punished by death? And why is monetary debasement today accepted as the “right thing to do” and “normalized” by prominent economists like Paul Krugman?

9. The KFC index - Patrick Chovanec regularly buys his lunch in Beijing at KFC. He's noticed a big increase in prices lately that is not being captured by the local CPI figures.

A year ago, my standard meal cost RMB 21.50. A couple of months ago it rose to RMB 25.50. Today, for the first time, it set me back RMB 28.50. For those keeping track, that’s a 32.6% price hike in a single year. There’s nothing scientific about this sample. It’s purely anecdotal. Perhaps KFC, or the Beijing market, is an aberration (I’m eager to hear anyone’s theories).

But I think it’s a data point worth noting, such caveats aside. KFC isn’t some outlier in the Chinese economy, like high-priced Starbucks that still caters mainly to young, cosmopolitan latte-sippers. KFC is incredibly popular with the laobaixing (the “common people:), who find chicken — especially the localized versions offered at KFC — far more familiar and appetizing than either coffee or burgers.

It outnumbers McDonald’s 2:1, with over 2,000 outlets and a reach that extends far into 3rd and 4th tier provincial cities. In China, KFC may be higher end than most, but it’s definitely mass market.

10. Totally relevant video - Nouriel Roubini has tea with The Economist. A must view if you want to understand what's happening with the global economy.

11. Totally irrelevant video - In North Korea this little girl plays this massive guitar. Can't be enough food. Amazing fingers.