Thursday's Top 10 with NZ Mint: How do banks grow profits when lending growth stops?; 12 signs of Hyperinflation; Portugal is broke; An automatic heat ray oven; Dilberts

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

I welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

I'll pop the extras into the comment stream. See all previous Top 10s here.

My apologies that there was no Top 10 yesterday and that this one is late. A bit hectic. Will have to change something. I've included some cartoons about Obama and Libya. The public in America really don't want another war. The mood there is feral, at best.

1. The game is over - Houses and Holes over at Macrobusiness has written an excellent piece calling Australia's debt fueled property boom the ponzi scheme it really is.

Houses picks up on this vague feeling of unease that is settling over the banks as they realise they can't rely on 5-10% lending growth forever. If fact there is virtually no lending growth to rely on.

It's no different here.

The banks are scrambling to understand what the new world of zero or no credit growth means. How can they increase profits when lending isn't growing?

How are they going to get the profit growth and high return on equity that shareholders have gotten used to?

Will they actually have to win real market share off each other?

Will they find profit growth from higher fees and margins? HT Stephen via email.

Houses says it best here:

In my view, savings are climbing because punters know, or at least sense, that the above system has passed its use-by date. Punters are not as stupid as the government thinks and despite all of the mollifying balderdash poured forth by “the system” since the GFC, they feel in their bones that something has changed.

For starters, the vast majority know that Australian housing is a debt-fuelled rocket in a world that is suddenly calling debt to account, and that’s an uncomfortable position to inhabit.

Moreover, we have a population bubble that is massively over-leveraged and over-exposed to said discomfort as they approach retirement.

Finally, for anyone that missed the Waterloo moment of Australia’s old system, the RBA has made it very clear that it will not let debt grow as it used to. Canberra knows the old system has passed, even if it keeps shreds alive in the endless China boom thesis.

So the system has lost its lynch pin. And the fallout is amazing to watch as Australia’s cartels writhe, trying to find ways of competing that doesn’t overly-expose their market dominance. It’s a dance of mock competition and high moral ground.

2. The 12 signs of hyper-inflation - America's National Inflation Association has published its 12 warning signs of hyperinflation here. They seem pretty convinced. I'm not so sure.

America may well export it, but with demand so weak it's hard to imagine prices catching fire.

But there's the thinking.

the majority of the warning signs that hyperinflation is imminent are already here today, but most Americans are failing to properly recognize them. NIA believes that there is a serious risk of hyperinflation breaking out as soon as the second half of this calendar year and that hyperinflation is almost guaranteed to occur by the end of this decade.

In our estimation, the most likely time frame for a full-fledged outbreak of hyperinflation is between the years 2013 and 2015. Americans who wait until 2013 to prepare, will most likely see the majority of their purchasing power wiped out. It is essential that all Americans begin preparing for hyperinflation immediately.

3. Headwinds for Australia - Economist Dave Hale is closely watched in Australia. Now columnist Terry McCrann at Rupert Murdoch's Herald Sun in Melbourne has written about Hale's warning that the lucky country faces a Chinese slowdown. HT Paul via email

US ECONOMIST David Hale has delivered a huge warning to Australia overall and to BHP Billiton and Rio Tinto in particular. It is all about China.

That rise and rise in our dollar is built on the China-driven commodity boom. Hale's big warning was that China's spectacular growth might -- indeed, would -- slow. If it ended up slowing dramatically -- not Hale's prediction -- our dollar would clearly plunge.

According to Hale, China's growth would slow first for cyclical reasons. China was experiencing serious inflation pressures from soaring food and energy prices. And then subsequently as the country grew richer and changed structurally. With wages pressures and a shortage of skilled labour, and a likely sustained rise in interest rates.

This came together in a rebalancing of the Chinese economy, as the consumption share increased and the capital spending share declined. That fed into his more specific warning that China was embarked on breaking the Australian-Brazilian iron ore "cartel".

4. China's ghost cities and malls - Adrian Brown from SBS' Dateline programme in Australia has produced an excellent documentary about a ghost city in China. The pictures are stunning. Vast, empty shopping centres. Shopkeepers who don't sell anything for days at a time.  64 million empty apartments. These are China's pyramids.

This is today's must watch. HT Blair via Twitter.

TIAN YU GAO (Translation):  Yesterday – I sold one toy.  Once it took four or five days

His shop is a rare sight in the Great Mall. The majority of this vast shopping centre remains as empty as it did when it opened six years ago. Back then, developers boasted that it would become the world's biggest shopping mall, with plans for 1500 shops that would attract 70,000 shoppers a day - the mall was heralded by the New York Times as proof of China's astonishing new consumer culture. But today, the not so great Mall of China, as it is known, is a glaring indication that this consumer culture has been grossly overestimated.

A gondola ride through the mall lasts 20 minutes and takes you past an unsettling and almost unending vista of emptiness. For the few workers kept on to maintain this vast and now eerie complex, it is boring and lonely work and already, there are signs of creeping neglect. Even filming an empty shopping mall is a sensitive issue in China - police arrived and ordered us out but the mall is so vast, it was easy to slip back in unnoticed and just like in the city of Zhengzhou, building goes on.

Despite repeated requests, the mall's management refuse to talk to Dateline, but Tian Yu Gao wonders if the mall may become another victim of the government's obsession with big infrastructure projects.

Gillem Tulloch is a Hong Kong-based analyst who has been investigating China's residential and commercial real estate market. He maintains that there's massive oversupply and over valuation of properties right across China.

GILLEM TULLOCH:  It's essentially the modern equivalent of building pyramids. It doesn't really add to the betterment of lives, but it adds to the growth of GDP.

And maintaining economic growth is the government's number one priority.

GILLEM TULLOCH:  It's basically happening because China is a command economy and the Chinese Government can dictate where the resources are spent.

REPORTER:  And so, if the order goes out to build, local governments build?

GILLEM TULLOCH:  That's right. If the central government a GDP target, they have to meet the target and the easiest way to do it is just to build.

REPORTER:  Isn't all this construction a good thing? It's creating jobs and getting the economy moving? That's a good thing?

GILLEM TULLOCH:  People forget that it is not the quantity of GDP that matters but the quality and essentially, they're building things for where there's no demand and so they're creating a large problem for the future.

5. Beef prices jump - Bloomberg reports Cattle futures prices in Chicago hit record highs overnight on expectations that fears about food and land being contaminated in Japan would increase Japanese imports of beef.

Japan was the largest importer of U.S. pork and the third- largest buyer of U.S. beef last year, government data show. In Japan’s northeast, hazardous radiation levels are delaying repair work at the Fukushima Dai-Ichi power plant, site of the worst nuclear disaster since Chernobyl.

Surging prices of corn, the main ingredient in livestock feed, have boosted costs for meat producers. In Texas, the leading U.S. cattle producer, the worst drought in 44 years is forcing ranchers to reduce herds.

“With the high price of beef, it’s getting real hard to move in the States, but export demand is really strong,” said Troy Vetterkind, the owner of Vetterkind Cattle Brokerage in Chicago. Japan has “been having to buy more beef, pork and chicken because of the problems they’ve got, so that’s been a pretty major factor,” he said.

6. Portugal is bascially broke - The Telegraph reports that Portugal is unable to pay interest payments due in June.  Brace yourselves.

The debt-laden nation faces around €9bn (£7.9bn) in bond redemptions by June, but currently has no more than €5bn in cash, analysts at Barclays Capital estimated.

"Portugal needs to find financing in the coming weeks in some way," they said, suggesting credit lines or some sort of bridge loan. "In our opinion, Portugal is likely to find financing, but it is not in a comfortable position."

Portugal denied that it could not afford to pay off its debt.

"The writing is on the wall for Portugal," said Kathleen Brooks, a research director at trading platform Forex.com. "A bailout is just a matter of time in this environment."  

7. Working for Families a two headed beast - Brian Easton from Victoria University has written a fascinating historical analysis of how New Zealand's social welfare system has developed over the years and how it has now become so pragmatic as to be a complete mess. The historical context he puts it all in is enlightening.

The scheme is incredibly clumsy. It is said that a committee designed a camel – a calumny on the ship of the desert; the committee that designed the Working for Families package designed a pushmi-pullyu.

To give an example of its two headedness, the scheme requires a decision as to whether two people are in a marriage-type relationship. In order to minimise the cost of the scheme the Department of Inland Revenue will declare a couple in particular circumstances as not married. Meanwhile in order to minimise benefit entitlements Work and Income New Zealand may declare the same couple as married. So one’s marital status may depend on which department of state is reviewing you. Coming to think of it, the pushmi-pullyu is much better designed.

8. An accident waiting to happen - FT reports via CNN that China's state run banks lent US$98 billion to state governments and their property development arms during the lending boom of late 2008 and all through 2009. The Chinese think they can control the problem and that all will be fine... See the video above for a reality check.

In an interview with the Financial Times, Jiang Jianqing, chairman of Industrial and Commercial Bank of China, the world's biggest bank by market capitalisation, acknowledged that unbridled lending to development companies controlled by local governments did carry some risk for the economy.

The development companies now account for 10 per cent of ICBC's loan book. In the aftermath of the 2008 global financial crisis, Chinese banks roughly doubled their lending activity.

"It is important that people pay attention to this problem and we should be alert to the risks," Mr Jiang said. "[But] I don't believe this problem poses a systemic risk to the Chinese banking system. It is my belief that within three years we will have solved this problem smoothly. Within three years we want lending to fully return to normal [pre-crisis levels]."

9. The end of Empire -  David Korten—author of When Corporations Rule the World and Agenda for a New Economy, The Great Turning: From Empire to Earth Community, writes here at CSRWire Talkback about Wall St and the end of empire. I tend to agree with him. HT Vault.com and Umair Haque.

Great civilizations were built and then swept away in successive waves of violence and destruction. War, trade and debt served as weapons of the few to expropriate the means of livelihood of the many and reduce them to slavery or serfdom. Whole empires were subjected to the delusional hubris and debaucheries of psychopathic rulers.

As powerful as Wall Street appears to be, it’s abuse of power has so eroded the economic, social and environmental foundations of its own existence that its fate is sealed. We the People have a choice. We can allow Wall Street to maintain its grip until it brings down the whole of human civilization in irrevocable social and environmental collapse. Or we can take control of our future and replace the Wall Street economy with the values and institutions of a New Economy comprised of locally owned businesses devoted to serving their communities by investing in the use of local resources to produce real goods and services responsive to local needs.

Either way, Wall Street’s days are numbered. Ours need not be.

10. Totally prescient prediction about The Astounding World of the Future. HT Mashable.

I like the automatic heat ray oven the best.