Wednesday's Top 10 with NZ Mint: 'Corporate Kleptocracy'; 'America's debt death spiral'; Final Harriers salute; Shanghai slowdown?; Dilbert

Here are my Top 10 links from around the Internet at 10 to 8 am, brought to you in association with New Zealand Mint for your reading pleasure.

I welcome your additions and comments below, or please send suggestions for tomorrow'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. America's debt spiral to come - Karl Denninger at MarketTicker hits the nail on the head with his analysis of the US budget situation.

It is utterly unsustainable.

He makes the point that at some stage there will be an explosive debt spiral that drives interest rates into the stratosphere and bankrupts America.

He makes the point persuasively.

This chart below suggests that foreign buyers of US debt will eventually revolt and/or demand repayment with physical goods (perhaps a nuclear powered aircraft carrier or two) rather than more printed paper.

HT Troy via email.

Here's Denninger's view and this cracking chart:

That graph probably ought to be titled "How do you avoid a Treason charge?" No, not today. We're not at war.

But in the future we're damn-near certain to wind up in one with this chart, and the bad news is that it will come about as a consequence of that foreign ownership and their reaction when the reality strikes - that we cannot pay.

Denninger also points out that Treasury in its spruiking note reckons it will only have to pay 3% interest rates to pension and insurance funds who buy this dreck.

He makes the excellent argument that if pension funds only get the 3% the Treasury wants to pay then the pension funds will blow up...

It all does not compute.

Higher interest rates are coming....or much worse...or both.

Note carefully the "insurers/pension" category.

Do that and the 8% return they're counting on turns into 3% (or the Treasury detonates, since that's the OMB baseline expectation.)

But if they only get 3% or 4% then every Pension fund in the United States detonates instead.  

2. Everyone's a fund manager - One thing many New Zealanders don't realise about the Australian pension fund marvel is that over a third of all investments in this A$1 trillion pot is 'self managed'. That means 'mums and dads' are doing it themselves. Hmmmm.

The Savings Working Group called for such self managed funds to be an option for KiwiSavers. See Alex Tarrant's article here. See our KiwiSaver section here.

Here's Stuart Washington at SMH.com.au with some thoughts.

MORE than A$400 billion invested in ''do-it-yourself'' superannuation funds, representing a third of Australian super, has no compensation safety net in case of fraud, industry experts have warned.

The chief executive of the Association of Super Funds of Australia, Pauline Vamos, said many investors put money into self-managed super funds without fully appreciating the risks. Investors in work-based super schemes covering most Australians are eligible for compensation in the case of fraud, at the discretion of the Assistant Treasurer, Bill Shorten.

But there is no such compensation safety net for investors in the rapidly-growing DIY super sector. ''The risks are you don't have a lot of those safety nets, and you have to understand that,'' Ms Vamos said. Jeff Bresnahan, the managing director of the super fund ratings firm SuperRatings, said DIY super had been sold by financial advisers and accountants, leading to its rapid growth, but many investors would not have been told of the lack of compensation when it comes to fraud.  

3. Those crazy Australians - The Australian government is so keen to promote anyone but the big four banks that it is planning to spend A$15 million on advertising for building societies and credit unions, Clancy Yeates reports at BusinessDay.

4. Those crazy Brits - A bunch of British Harrier Jumpjet pilots appear to have given the British government a slightly rude send off message in their farewell flight.

Or it could be some fancy work with photoshop. Not sure.

But here's the pic. HT Gareth.

5. Corporate Kleptocracy - The rhetoric of many in business and the markets of a sceptical bent is taking on a disillusioned tone. Here's Ed Harrison talking at Credit Writedowns about how some libertarians have become 'Corporatists' and how dangerous that is.

Many are now questioning the fundamental model of listed corporates driven by shareholders and managers, particularly those of a large multi-national bent.

These corporates seem hell bent on producing short term performance to keep fund managers and analysts (and managers happy), but are doing it at  the cost of lowering wages, ripping off customers and destroying the environment. Some are calling it the Ponzieconomy.

Harrison says corporates should not have the rights of individuals. HT Troy via email.

Let’s be clear, corporations are not individuals; they are collections of individuals. Often, individuals hide behind this collective using the corporate veil to shield themselves from sanction for behaviour that abuses individual liberties. In a very real sense, the rights and liberties of businesses and individuals often come into conflict. A real libertarian would always favour the individual in that conflict. A corporatist would favour the corporation.

That’s the difference.Corporatism has nothing to do with liberty. It is all about power and coercion. It’s about favouring the big guy over the little guy, the more well-connected over the less well-connected, the insider over the outsider. And in society that means favouring large, incumbent businesses over smaller businesses, new entrants or individuals.  

This favouring of large corporate interests is what Bill Black has been calling Deregulation, Desupervision and De Facto Decriminalization. Dylan Ratigan calls it corporate communism. Ron Paul calls it corporatism. I am calling it kleptocracy. Whatever label you put on this ‘thing’, it is not about liberty at all. It is about entrenching the interests of a select few at the expense of the rest– and that has nothing to do with liberty.

6. Shanghai slowdown? - Shanghai Daily reports that the boom in Shanghai apartment developments may be cooling as the various (desperate) government measures to slow it down start taking effect. Is this the beginning? HT Reece via email who points out: "These will not be one apartment building like in NZ, but a whole block with many multi story apartments or a subdivision of Villas."

MORE than 20 new residential developments in Shanghai have shelved their sales plans amid a rising "wait-and-see" sentiment among buyers because of several tightening measures by the central government, Soufun.com, an online real estate services provider, said yesterday.

Fewer than 100 units of new apartments, located between the Middle and Outer Ring roads in north Shanghai's Baoshan District, may be released to the local market at the weekend, a sharp drop of 57 percent from same period a week earlier, Soufun said.  

7. 'You ain't seen nuthin' yet' - British Justice Secretary Kenneth Clarke reckons middle England has yet to see the full force of the UK budget cuts and when it does the political pain is going to be intense. HT Daryl via email.

In a grim assessment of the “calamitous” state of the economy, the former chancellor says he does not envisage “a quick rebound”. This puts him at odds with the Treasury, which believes the return to growth will be swift after the last quarter’s shock fall.

In an interview with The Daily Telegraph, he says: “One reason we’re going to get some political difficulty is that [while] the public knows we’ve got to do something about it, I don’t think Middle England has quite taken on board the scale of the problem.

“That will emerge as the cuts start coming home this year. We’ve got to get on with it [but] it’s going to be very difficult. If someone says it’s not as bad as all that, I say [they] just don’t realise the calamitous position we’re in.”