Thursday's Top 10 with NZ Mint: Fed's Hoenig wants banks broken up; Should the RBNZ hike instead?; Call for 3 global currencies; Macquarie attacked; Stagflation

Here's my Top 10 links from around the Internet at 10 past 8pm in association with NZ Mint.

Again, a shortened version tonight. No cartoons or videos.

I welcome your help below with links in the comments.

We're focused locally at the moment.

1. Hoenig's a hero - Fed Reserve Governor Thomas Hoenig has been the black sheep/lone wolf within the US Federal Reserve arguing against QE II.

Now he has said America needs to break up its Too Big To Fail banks, which he describes as a threat to "our capitalistic system."

This is extraordinary.

Someone at the centre of the system has called the US regulatory response to the GFC an emperor with no clothes. HT Andrew

Here's the full speech.

“I am convinced that the existence of too-big-to-fail financial institutions poses the greatest risk to the U.S. economy,” Hoenig said today in a speech in Washington. “They must be broken up. We must not allow organizations operating under the safety net to pursue high-risk activities and we cannot let large organizations put our financial system at risk.”

Hoenig, the lone dissenter from every Fed meeting in 2010, has argued that the most sweeping overhaul of U.S. financial regulation since the Great Depression won’t prevent the largest banks from taking excessive risks and increasing market share. Regulators, including the Fed, are implementing the law.

“In my view, it is even worse than before the crisis,” Hoenig said.

2. Should the RBNZ hike instead? - An academic paper has looked at whether the US Federal Reserve should have hiked or cut interest rates after Hurricane Katrina. It found the following:

A nominal interest rate increase following a disaster mitigates both temporary inflation effects and output distortions that are attributable to nominal rigidities.  

3. Geithner's Gamble - Simon Johnson, the co-author of 13 Bankers, has written about Treasury Secretary Tim Geithner and how he is completely captured by the big banks and their plans for global domination.

In a recent interview, United States Treasury Secretary Tim Geithner laid out his view of the nature of world economic growth and the role of the US financial sector. It is a deeply disturbing vision, one that amounts to a huge, uninformed gamble with the future of the American economy – and that suggests that Geithner remains the senior public official worldwide who is most in thrall to the self-serving ideology of big banks.

Geithner argues that the world will now experience a major “financial deepening,” owing to growing demand in emerging markets for financial products and services. He is thinking, of course, of “middle-income” countries like India, China, and Brazil. And he is right to emphasize that all have made terrific progress and now offer great opportunities for the rising middle class, which wants to accumulate savings, borrow more easily (for productive investment, home purchases, education, etc), and, more generally, smooth out consumption.

But then Geithner takes a leap. He wants US banks to take the lead in these countries’ financial development.  

4. Three Global currencies - Fred Bergsten writes clearly about why the world needs three global currencies, rather than the one flawed one it has now. HT Andrew.

The share of foreign exchange reserves held in dollars has fallen in the past decade to about 60 percent. The share in euros has risen to more than 25 percent. The rise of China implies the renminbi will qualify for global currency status whenever it achieves full convertibility and sheds its protective capital controls. In short, the international monetary system is already becoming bipolar, and may soon be tripolar. The United States should accept this and even promote its acceleration.

The goal should be roughly to equate the international positions of the dollar and the euro in the next decade or so, and subsequently to bring the renminbi into the mix along with steady creation of special drawing rights (SDRs). It should encourage China and others to intervene in euros as well as in dollars.

It could intervene in euros itself if the dollar-euro rate became misaligned. It could also overtly discourage dollar build-ups by foreign monetary authorities through countervailing currency intervention and by taxing the income on their dollar holdings.

5. Ready for US$220/bbl oil? - Bloomberg reports Nomura reckons the price of oil could get to US$220/bbl if unrest halts exports from Libya and Algeria (and let's not mention Saudi Arabia).

“If Libya and Algeria were to halt oil production together, prices could peak above $220 a barrel and OPEC spare capacity will be reduced to 2.1 million barrels a day, similar to levels seen during the Gulf war and when prices hit $147 in 2008,” the Tokyo-based bank said in a note today.

Nomura said the $220 prediction may be an underestimate, as speculative investors trading crude oil who were not active in the early 1990s may amplify the price. A surge to $220 would trigger demand destruction and a correction lower, according to Stephen Schork, president of the Schork Group Inc. in Villanova, Pennsylvania.

“These are levels that effectively kill the global recovery,” Schork said in an interview. “You can never say never, but $220 is blatantly not sustainable.”

6. Rate hikes in Europe - The drums are beating for higher interest rates in Europe and Britain, Bloomberg reports.

The Bank of England's monetary policy committee is already split on the need for a hike.

The ECB is also expected to start hiking soon, Bloomberg reported.

7. Out of whack - Barry Ritholz points out the value of America's stock market has averaged 62% of US GDP since 1924, this chart below shows. It's currently at 120%.

8. Macquarie the world leader - NakedCapitalism's Yves Smith says sales of public assets almost always lead to a ripoff of the public. Here's her thinking, pointing in particular to the activities of Macquarie Bank in Australia.

Even if the owners manage to orchestrate the bidding well enough to assure that the entity fetches a decent price, the cost of doing the deal and the investors’ return requirements assure that charges to the public will rise faster than if the property was left in government hands (and this does not preclude the owner scrimping on maintenance and service levels).

Macquarie Bank has been the world leader in this business, and reader Crocodile Chuck gave some useful examples:

Ah, the Macquarie model! Clipping the ticket, at each step, and all the way through the route map from public good to ‘privatised entity’. The Sydney Airport (a Macquarie Airports asset), boasts the second highest parking rates on Earth (not inherited with the operation; they levied this themselves). About $100 for eight hours (I’ve never used it, since it was sold down the river) Highest: Budapest Ferihegy in Hungary.

Owner: Macquarie Airports. I happen to have flown out of Budapest last summer. The lavish fees most assuredly have not been reinvested in the physical plant; the airport looks dated and worn.

9. Stagflation - Mohamed El Irian from Pimco warns about stagflation in this piece published in the FT.com.

In the short run, regional developments will be stagflationary for the global economy due to three main factors: First, higher oil prices will increase production costs and act as a tax on consumers.

Second, greater precautionary stockpiling around the world will intensify pressures on commodities as a whole, aggravating the impact of demand-supply imbalances and large injections of liquidity.

Third, the region will be a smaller market for other countries’ exports. This economic reality is far from encouraging for western countries that have few options in reacting to what is an increasingly fluid situation.  

That's enough.