Friday's Top 10 at 10 with NZ Mint:What might happen if China doesn't relent; QE II locked and loaded, but still useless; Yuan the next super currency?; Dilbert

Here are my Top 10 links from around the Internet at 10 to 10 pm on Saturday, brought to you in association with New Zealand Mint for your reading pleasure. My apologies for extreme lateness. One of those weeks. I welcome your additions and comments below, or please send suggestions for Monday'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.

1. What is at stake - George Soros, who knows a thing or two about currencies, makes a strong case for China to let its renminbi rise.

Whether it recognizes it or not, China has emerged as a world leader. If it fails to live up to the responsibilities of leadership, the global currency system is liable to break down and take the world economy with it.

Either way, the Chinese trade surplus is bound to shrink, but it would be much better for China if that happened as a result of rising living standards rather than global economic decline. The chances of a positive outcome are not good, yet we must strive for it, because, in the absence of international cooperation, the world is headed for a period of great turbulence and disruption.  

2. Move along, nothing to see here - John Wilson from PIMCO writes at BusinessSpectator that there is no housing bubble in Australia. HT Gummy via email.

The demand for housing is determined by the number of people who are coming into the household forming stage of their lives together with housing affordability. Australia’s immediate economic outlook is supportive of household earnings growth and with interest rates back in mid-range, any further tightening will be modest.

Housing supply will continue to be constrained. Taking all these factors into account it is difficult to conclude that Australia's housing market is in a bubble.  

3. Box ticked - Non farm payrolls were worse than expected and now the markets are all set for the US Federal Reserve to start money printing from November 3.

The U.S. lost more jobs than forecast in September as local governments fired educators and other workers to make up for declining tax revenue. Payrolls fell by 95,000 workers after a revised 57,000 decrease in August, the Labor Department said yesterday in Washington. Companies added 64,000 jobs, less than forecast, while the unemployment rate held at 9.6 percent. The Dow rose over 11,000.

“The key driver has been the prospects of quantitative easing,” said Komal Sri-Kumar, the Los Angeles-based chief global strategist at TCW Group Inc. who helps oversee about $109 billion.

“The markets think there could be the increase in money supply coming from the Fed’s renewed purchases of Treasuries. It’s a green signal for investors to take on more risk.”  

4.Printing pointless - With all this talk of Fed money printing, various economists are running the numbers through their models and discovering trillions of dollars of bond buying won't actually reduce unemployment much, Bloomberg reports.

For $2 trillion, Federal Reserve Chairman Ben S. Bernanke may buy little improvement in growth, employment or inflation over the next two years. Firms with large-scale models of the U.S. economy such as IHS Global Insight, Moody’s Analytics Inc. and Macroeconomic Advisers LLC project only a moderate impact from additional Fed asset purchases.

The firms estimate that the unemployment rate will remain around 9 percent or higher next year whether the Fed buys $500 billion or $2 trillion of U.S. Treasuries in a second round of unconventional stimulus. “This is not a game changer for the economic outlook,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, whose models show that $500 billion of purchases would boost growth 0.1 percentage point in 2011 and leave the unemployment rate at 9 percent or above for the next two years.

“There is clearly a risk that people start to perceive monetary policy as impotent.”  

5. Too many shops - Jim Quinn writes at the Burning Platform and here at Naked Capitalism about the problem with commercial property in America.

There is a Part 2 to the story of Consumer Deleveraging that will play out over the next decade.

Consumers will deleverage because they must. They have no choice. Boomers have come to the shocking realization that you can’t get wealthy or retire by borrowing and spending. As consumers buy $500 billion less stuff per year, retailers across the land will suffer.

To give some perspective on our consumer society, here are a few facts:

* There are 105,000 shopping centers in the U.S. In comparison, all of Europe has only 5,700 shopping centers. * There are 1.2 million retail establishments in the U.S. per the Census Bureau. * There is 14.2 BILLION square feet of retail space in the U.S. This is 46 square feet per person in the U.S., compared to 2 square feet per capita in India, 1.5 square feet per capita in Mexico, 23 square feet per capita in the United Kingdom, 13 square feet per capita in Canada, and 6.5 square feet per capita in Australia.  

6. Dangers in complexity - Nassim Taleb has some interesting views on how systems need redundancies and inefficiencies to survive. Here John Kay argues the costs of increasing complexity in financial markets and economies outweighs the benefits. Interesting deep thinking read. Kay looks in particular how Rome fell as a civilisation.

What of today’s barbarians at the gate? Trading in securities naturally invites trading in derivatives. Wherever there is a collateralised debt obligation there will soon be a CDO squared. The volume of activity, and the number of people employed in financial services, increases more rapidly than the number of people employed in the underlying trade in goods and services.

For Tainter, the fall of Rome was principally an economic phenomenon. For Gibbon, it followed the decline of civic virtue. So much changes, yet so much remains the same.  

7. China won't budge - The big debate now is over China's reluctance to let the renminbi/yuan rise vs the US dollar. Here's the tone of the latest comments from Chinese Premier Wen Jiabao, as reported by BBC. They're aren't positive.

In a speech to top EU officials, Mr Wen said a big change in the value of the yuan could cause "social and economic turbulence" in China. Mr Wen said China was still planning to proceed with reforms aimed at "increasing flexibility" in the exchange rate, but suggested it would not be rushed. A sharp rise in the yuan could have disastrous consequences, he said.

"Many of our exporting companies would have to close down, migrant workers would have to return to their villages," Mr Wen warned. "If China saw social and economic turbulence, then it would be a disaster for the world."  

8. Yuan as next super-currency? - DNA reports that Joseph Yam, the former head of the Hong Kong Monetary Authority, reckons the renminbi or yuan could become the next super-currency in some shakeout post the US dollar.

Confidence in international currencies could break down to such an extent that it could lead to sharp changes in the near future,” says Joseph Yam, who retired last year as chief executive of the Hong Kong Monetary Authority, the world’s highest paid central banker.

In such a scenario, and in the absence of any other credible alternative to the US dollar as the reserve currency of choice, “the market may in the end turn to a sovereign currency currency — and that currency, I think, could be the renminbi,” he adds.

Yam concedes that there are certain pre-requisites that must typically be met before that eventuality happens: for instance, the yuan should become fully convertible, the domestic debt market in China should acquire depth, and a robust financial infrastructure should be put in place. But, he points out, “these are precisely the strengths of Hong Kong”, where the most ambitious experiment in internationalisation of the yuan is progressively underway.  

9. Robo-signer fallout - The fallout from the Robo-signer scandal continues to rumble through the banking system. Analyst Marshall Auerback is now calling for a bank holiday to assess the damage. HT Iain Parker via email.

Most major banks are insolvent and cannot (and should not) be saved. The best approach is something like a banking holiday for the largest 19 banks and shadow banks in which institutions are closed for a relatively brief period. Supervisors move in to assess problems.

It is essential that all big banks be examined during the "holiday" to uncover claims on one another. It is highly likely that supervisors will find that several trillions of dollars of bad assets will turn out to be claims big financial institutions have on one another (that is exactly what was found when AIG was examined - which is why the government bail-out of AIG led to side payments to the big banks and shadow banks)....

By taking over and resolving the biggest 19 banks and netting claims, the collateral damage in the form of losses for other banks and shadow banks will be relatively small.

10. 'America is broke' - David Stockman, the former budget director under President Reagan from 1981 to 1985, reckons America can't afford to extend the Bush tax cuts, which goes against the grain for most conservatives. I think he's right.

Here's the interview in The Fiscal Times (great name for a blog site)

The Fiscal Times (TFT): What should the president and Congress do about the Bush tax cuts this year?

David Stockman (DS): The two parties are in a race to the fiscal bottom to see which one can bury our children and grandchildren deeper in debt. The Republicans were utterly untruthful when they recently pledged no tax increases for anyone, anytime, ever. The Democrats are just as bad — running their usual campaign of political terror on social security and other entitlements while loudly exempting all except the top 2 percent of taxpayers from paying more for the massively underfunded government they insist we need. In effect, we undertook a national leveraged buyout, raising total credit market debt to $52 trillion, which represented a 3.6X leverage ratio against national income or GDP.

The fact is, the Bush tax cuts were unaffordable when enacted a decade ago. Now, two unfinanced wars later, and after a massive Wall Street bailout and trillion-dollar stimulus spending spree, it is nothing less than a fiscal travesty to continue adding $300 billion per year to the national debt. This is especially true since these tax cuts go to the top 50 percent of households, which can get by, if need be, with the surfeit of consumption goods they accumulated during the bubble years. So Congress should allow the Bush tax cuts to expire for everyone. By doing nothing, the government would be committing its first act of fiscal truth-telling in decades.

10. Totally irrelevant video - Donald Duck does Glen Beck, or is it vice versa. HT David via email.