Thursday's Top 10 with NZ Mint: Turning Japanese and the quadruple dip; What a Greek default would mean; Nouriel Roubini tells Europe to bite the bullet; Jemina Khan's Dad speaks; Dilbert

Here's my Top 10 links from around the Internet at 12 pm  in association with NZ Mint.

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

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

It's all Stuff and Nonsense today.

1. Why turning Japanese will crate a quadruple dip - Economist Steve Keen talks in this video below about American and Australian debt and why we're all set for a double dip and eventually a quadruple dip.

He says America is turning Japanese by leaving its zombie banks alive and trying to deficit-spend out of a hole. It didn't work for the Japanese and it won't work for America, he says.

Worth a watch. Only 5 minutes long.

It includes plenty of juicy debt charts.

The Australians are starting to get nervous about all this stuff.

Keen's basic idea is that the debt levels in developed economies such as America and Australia (and New Zealand) are not sustainable without some sort of clearing of the decks with a massive restructure.

Some would call it a debt jubilee.

Professor Keen explains the private debt dynamics that caused both the Great Depression and the Great Recession. The Great Recession will end when private debt is much lower than it is now--even though it's fallen by 30% of GDP since the peak, it's still 100% higher than at the start of the Great Depression.

A slowdown in the rate of decline of debt actually caused much of the recent recovery, but Professor Keen expects that this slowdown will pass and a double dip will occur.

2. 'The case for disorderly energy descent' - Here's Karl North at Energy Bulletin talking about how the world might (or might not) cope with a decline in oil production. I spotted this yesterday on one of our threads. HT whoever put it up. Sorry was a while ago. Specially for Powerdownkiwi.

All a bit Rapturish, but worth thinking about.

The era of cheap oil saw the emergence of complex and ultimately fragile social and economic structures. During this time for example, the spatial distance between material and labor resources, production facilities and markets could expand with few obstacles.

As this distance economy becomes increasingly costly and eventually unaffordable, perhaps the strongest feedback effect exerting short term downward pressure on oil prices is the specter of a widespread economic depression triggered by a chain reaction of non-performing mortgage and other debt leading to bank and insurance industry collapse, etc.

3. Why a Greek default would be worse than Lehman - John Carney writes at CNBC about why a Greek restructure could be so damaging. He does a nice job of explaining the intricacies of the European financial malaise. HT Andrew via email.

There is roughly 270 billion Euros in outstanding Greek sovereign debt. Banks—mostly European banks—hold around 100 billion Euros of Greek bonds. Insurance companies, pensions funds and central banks hold most of the other 170 billion. For the most part, these holders of Greek debt have not had to reserve any capital against losses. This means that most of the holders of Greek debt will feel the full brunt of the losses, which raises the question of whether they are adequately capitalized to take the loss.

European bank capital regulations treat Eurozone sovereign debt as riskless. This was, in effect, a subsidy to the riskier Eurozone governments—allowing them to borrow at far lower costs than they other would have faced. The spread between German and Greek debt fell to 20 basis points in 2004, thanks largely to this subsidy.

Banks, of course, loaded up on the riskier debt because it had slightly higher yields. They, in effect, adopted the view of regulators that the debt was risk free. It allowed them to earn higher yields without setting aside additional capital by lending money to borrowers whom the regulations disfavored.

This subsidy was extremely important to European governments. In the US, only 3 percent of government debt is held by banks. In Europe, 30 percent of government debt is held by banks. Without the subsidy, many Eurozone government would have had a much harder time selling their bonds.

This high concentration of sovereign debt in European banks raises the possibility that the banks may be severely undercapitalized—and may require a government recapitalization or face failure themselves. Even the European Central Bank, which now holds a huge amount of Greek debt, may need to be recapitalized.

4. The problem with Free Trade - Sir James Goldsmith speaks in 1994 with Charlie Rose about the problems with high paid manufacturing jobs being exported offshore.

He's strangely prophetic about the problems of globalisation and instability in financial markets and national economies. There are 5 parts at 10 minutes each. You need to click here to see them all.

The first part is below.

He wrote a book called The Trap which reads like a warning about the problems we now face. HT WonkMonk via twitter.

Goldsmith was a private equity billionaire who made his fortune buying companies and assets from developed and developing countries around the world. Yet despite this success, his book openly questions the notion of unfettered global markets. 

He describes how the shift from locally produced goods to goods produced anywhere in the world could destroy the prosperous economies of the developed world that were built up over centuries. This will happen, according to him, because global free trade will create unbridgeable divide between the rich over the ordinary people. 

The rich will stay rich by investing their capital into Multinational Companies. In order to compete and make profits, these companies will exploiting ever cheaper sources of labour in developing countries. 

In the other hand, the ordinary people in developed countries will lose their jobs because the cost of their salaries are too expensive in a global economy that include 4 billion people wiling to work for "almost nothing".

5. 'The heroes are really zeroes' - Jesse Eisinger writes a review at ProPublica about the new 'Too Big To Fail' movie starring William Hurt as US Treasury Secretary Hank Paulson dealing with the Global Financial Crisis.

Ostensibly it's a story of their success against all odds. Michael Kinsley, reviewing the movie in the New York Times, labeled Hank Paulson the "hero" of the account.

Except that the movie actually depicts something entirely different: failure upon failure. "Too Big To Fail" The Movie isn't the story of how the Three Musketeers saved the global economy. It's a story of how the three didn't see the financial crisis coming; hadn't prepared for it; made mistake after mistake as it was cresting; and then, in their moment of triumph, made their most colossal blunder of all.

That, it turns out (whether or not "Too Big To Fail" knows it), is the true story of the financial crisis.

6. Biggest lobbyists made the biggest loans at the stupidest interest rates - Casey Mulligan writes at the New York Times about how the biggest financial lobbyists were the biggest culprits in the NINJA (No Income No Job No Assets) lending that helped cause the US Sub Prime crisis.

A recent update to a continuing study finds a link between bailouts and the lobbying of the financial industry. The study, by Deniz Igan, Prachi Mishra, Thierry Tressel, three economists at the International Monetary Fund, suggests that implicit subsidies and a lack of regulation helped make it possible for lenders to offer lower rates on mortgages that were increasingly likely to default.

The study by the I.M.F. economists found that the heaviest lobbying came from lenders making riskier loans and expanding their mortgage business most rapidly during the housing boom. The loans originated by those lenders were, by 2008, more likely to be delinquent.

Most important, lobbying meant access to tax dollars. The lenders lobbying more heavily were 7 percent more likely to receive bailout funds, received larger amounts of those funds, and enjoyed a 27 percent greater increase in their market capitalization in October 2008, the month the bailout program was announced.

7. 'Restructure now' - Nouriel Roubini makes the case for a Greek restructure here. He's not so worried about the fallout. He is basically saying trying to extend, pretend and shuffle away the problem is worse the taking the pain now.

The ECB and other commentators have raised the specter that a debt restructuring in Greece would lead to massive and destructive contagion to financial markets, banks and financial institutions and other EZ sovereigns that would in turn lead to financial disaster. Those fears have now led to increasingly shrill warnings, despite their empirical basis being extremely weak.

The ECB’s dogmatic, dogged dismissal of debt relief and hyperbolic use of the D words of disorderly default, propagates rather than mitigates instability. Contagion, contamination and moral hazard are unfolding before our eyes already, since Greece’s debt is unsustainable and its program off-track; Ireland’s bank rescues have destroyed sovereign creditworthiness, compromising its ability to support those banks; Portugal has lost market access; and official discussion and ECB rejection of debt relief has re-ignited financial instability.

An objective analysis and pre-emptive, orderly debt rescheduling would actually mitigate rather than exacerbate the risks of contagion, contamination and moral hazard. Quid-pro-quos among creditors and debtors, public and private, bank creditors and shareholders, would make for a more politically viable adjustment. It would also avoid the moral hazard of indefinite bailouts and a fiscal transfer union by stealth that would result from the ECB’s approach of “kicking the can down the road,” a can that is already too heavy to kick or carry given the political realities of limited EZ fiscal integration and federalization.

8. What would happen if Greece defaults - Andrew Lilico writes at The Telegraph about what would happen if Greece defaulted. He's less sanguine than Roubini.

Here are a few things:

- Every bank in Greece will instantly go insolvent.

- The Greek government will nationalise every bank in Greece.

- The Greek government will forbid withdrawals from Greek banks.

- To prevent Greek depositors from rioting on the streets, Argentina-2002-style (when the Argentinian president had to flee by helicopter from the roof of the presidential palace to evade a mob of such depositors), the Greek government will declare a curfew, perhaps even general martial law.

- Greece will redenominate all its debts into “New Drachmas” or whatever it calls the new currency (this is a classic ploy of countries defaulting)

- The New Drachma will devalue by some 30-70 per cent (probably around 50 per cent, though perhaps more), effectively defaulting 0n 50 per cent or more of all Greek euro-denominated debts.

- The Irish will, within a few days, walk away from the debts of its banking system.

9. How much is US debt worth in gold now? - This chart tells the story. But the size of the debt remains monumental.

One takeaway from this exercise is to show how little impact the U.S.'s gold reserves would make in paying down the debt. The U.S. government has around 21.7 million pounds of gold. That might sound like a lot, but it would take 808.0 million pounds of gold to pay off the debt. Even if the U.S. government put every once of its gold towards paying down the debt, it would pay down less than 3%.

How much is 808 million pounds of gold? For a little perspective, this is equal to the weight of 55,403 male Asiatic elephants. It's weighs as much as nearly 80 million gallons of water, which is enough to fill up 121 Olympic-sized swimming pools. It's the same weight as 1,691 Boeing 747-400 jets ("Operating Empty Weight").

10. Totally Kiwi video about wet sand - Our apologies in advance to Tim Finn for copyright infringement and crimes against a reasonable song. Though it's not my favourite.

My favourite Tim Finn song is Stuff and Nonsense. I've put the Eddie Vedder/Tim Finn version below to atone.