Wednesday's Top 10 with NZ Mint: Why China can't be relied on (Parts 1-III); A fleeing central banker called Fitrat; The 3-D hurricane of debt; Wind farms blowing the earth off its axis; Dilbert

Here's my Top 10 links from around the Internet at 1 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.

Why are we so sure China will keep growing at 10% forever...

1. Why China can't be relied on (Part 1) - Famed US economist Gary Shilling predicted the US housing bust. Now he's saying in a 5 part series at Bloomberg there are risks in relying on China's growth to bail out the world.

This is crucial for New Zealand and seems to be at the core of the government's strategy.

John Key is relaxed about a high currency because it is a reflection of strong Chinese demand for our commodities.

He is betting on a decade or two of high commodity prices to power New Zealand's growth.

But what happens if China's growth slows.

How sustainable and reliable is it.

Shilling thinks not very in part 1:

Few countries are more important to the global economy than China. But its reputation as an unstoppable giant -- as a country with an unending supply of cheap labor and limitless capacity for growth -- masks some serious and worsening economic problems.

China’s labor force is aging. Its consumers save too much and spend too little. Its political and economic policy tools remain crude. Its state bureaucracy seems likely to curb spending just as exports weaken, and thus risks deflation. As U.S. consumers retrench, and as the global commodity bubble begins to dissipate, these fundamental weaknesses will combine in a way that’s unlikely to end well for China -- or for the rest of the world.

To start, China is much more vulnerable to an international slowdown than is generally understood.

2. Why China can't be relied on (Part 2) - Shilling goes into some depth about the issue of China's ageing workforce and the one child policy.

This kind of growth is unsustainable, and it won’t be able to cover up China’s underlying vulnerabilities forever.

China’s reliance on exports and a controlled currency for growth, for instance, will no longer work if U.S. consumers are engaged in a chronic saving spree, as I believe they will be. Chinese export growth, which averaged 21 percent per year in the last decade, is bound to suffer.

The country’s seemingly inexhaustible pool of cheap labor is expected to peak in 2014, in part due to its rigid one-child policy. By some estimates, ample labor has boosted GDP growth by 1.8 percentage points annually since the late 1970s, but the contraction of the working-age population will reduce growth by 0.7 percentage points by 2030.

3. Why China can't be relied on (Part 3) - Shilling then looks at how Chinese apartment building has been responsible for a good chunk of its growth in the last couple of years and how vulnerable it now is.

Inflation worries start with housing. With Chinese exports curtailed by U.S. consumer retrenchment, capital spending threatened by government restraints and excess capacity, and domestic spending less than robust, housing has been China’s big generator of economic growth in recent years. By some estimates, half of Chinese GDP is linked to real-estate activity.

The government is fearful of rising prices, and has moved to prevent speculation. Buyers must now put down 60 percent of the purchase price on second homes, and 30 percent on first homes. The government is pressing banks to contain mortgages, and some have raisedinterest rates. In January, the mayor of Shanghai announced a new tax on property transactions that may be copied nationwide as other officials attempt to cool prices.

With these restraints in place, and with supply starting to catch up with demand, housing sales have slowed. But this has not fully curtailed China’s real-estate bubble: Housing starts rose about 40 percent last year. Developers are rushing to build while they try to support faltering prices by delaying completions and creating artificial shortages. Of course, these efforts are difficult to maintain because they tie up capital in uncompleted houses. Houses are now being built at about twice the rate they’re being sold, well above earlier norms.

Shilling also makes some excellent points on how difficult it will be for the Chinese government to engineer a soft landing:

I suspect that such a hybrid market system is too unwieldy to allow the Chinese government to manage a soft landing for its economy. By my reckoning, the Federal Reserve has tried 12 times in the post-World War II era to cool an overheating economy without precipitating a recession. It succeeded only once. Can the politically controlled Chinese central bank, and the government leaders who really call the shots, be more successful than the independent Fed?

That seems unlikely. And the consequences, for China and the world economy, could be unfortunate.

4. Is a corporate a person under the law - Laura Flanders writes at The Guardian in the wake of the US Supreme Court decision in favour of Wal-Mart how large corporates are increasingly hiding behind the law and are using law reforms to strengthen their immunity.

HT from Troy via email who had this to say:

This is all going to come to a head soon where they will have to differentiate actually live people with corporate people.  I think the precedent will come from all places the patent system where the patent holder has to be an actual human being and not a corporation. A human can sell their rights to a corporation but a corporation cannot file. So the distinction of Human vs. Corporation has a long established history.

And here's Flanders:

The US supreme court in Dukes v Walmart recently rejected 1.6 million workers' attempt to bring a class action case – making it a whole lot harder for Americans to band together to hold corporations accountable. Go it alone and the deck is stacked, thanks to decades of effort by corporations and the politicians they pay for.

They don't pay fair wages; they don't pay their fare share of taxes. They evade liability. What gives? Says Saladoff: "When corporations harm, there should be some way to hold them accountable."

5. Today's Must Read - Rolling Stone's Matt Taibbi is usually brilliant and his piece here on Republican Presidential contender Michelle Bachmann is stunning. Read it and shudder.

America is in a dark place.

Here's a taste from Taibbi, who says she is nothing to laugh at:

Even other Republicans, it seems, are making the mistake of laughing at Bachmann. But consider this possibility: She wins Iowa, then swallows the Tea Party and Christian vote whole for the next 30 or 40 primaries while Romney and Pawlenty battle fiercely over who is the more "viable" boring-white-guy candidate. Then Wall Street blows up again — and it's Barack Obama and a soaring unemployment rate versus a white, God-fearing mother of 28 from the heartland.

It could happen. Michele Bachmann has found the flaw in the American Death Star. She is a television camera's dream, a threat to do or say something insane at any time, the ultimate reality-show protagonist. She has brilliantly piloted a media system that is incapable of averting its eyes from a story, riding that attention to an easy conquest of an overeducated cultural elite from both parties that is far too full of itself to understand the price of its contemptuous laughter. All of those people out there aren't voting for Michele Bachmann. They're voting against us. And to them, it turns out, we suck enough to make anyone a contender.

6. A fleeing Fitrat - WSJ reports Afghanistan's central bank chief Abdul Fitrat is on the run because of death threats he received after blowing the whistle to his own government about fraud at the country's biggest lender.

Why on earth does New Zealand still have troops in this corrupt and dangerous hell-hole?

Bank Governor Abdul Qadir Fitrat left Kabul for the U.S. about 10 days ago, one of these people said. Last year Mr. Fitrat opened an investigation into Kabul Bank, which nearly collapsed amid public allegations that its owners used it to make favorable loans to themselves and politically connected associates.

Mr. Fitrat's departure is a blow to the International Monetary Fund's attempts to reform Afghanistan's financial and regulatory system, which center on dissolving Kabul Bank, a U.S. official said. The IMF suspended its financial-assistance package last year, and many countries can't donate to Afghanistan in its absence.

A report published in March by the U.S. Agency for International Development, which was investigating the millions of dollars it spent on providing international mentors to the Afghan regulator, found that Kabul Bank's management "indirectly threatened" a central bank examination team in January 2010.

7. The 3-D Hurricane - Jason Hsu writes at Market Oracle about the effects of Debt, the Deficit and Demographics. His conclusion is the developed world will remain mired in debt, slow growth and weakening credit ratings.

There is an inconsistency though. How is the developing world going to keep growing when it is reliant on exporting to consumers in the developed world, who are now going into their shells (see Shiller above).

At the moment China is squaring the circle by building Ghost Cities in the interior...

Here's Hsu with the brave new world.

 In a sense, debt, deficit, and demographics will reset the world to a "New Normal" -- an extended period of lower economic and return expectations for the aging and debt-ridden developed world. In contrast, emerging economies with healthy government and household balance sheets, responsible fiscal policies, and young labor forces will be the drivers for global growth and will compete with their developed counterparts for economic and political leadership. More importantly, the emerging economies will demand their fair share in the consumption of resources and goods. That competition for resources and goods will lead to higher prices at a time when developed countries are less able to further finance their consumption.

Deficit spending, by itself, is not particularly worrisome. That is, borrowing today to invest for the future and/or borrowing to smooth temporary consumption shocks is perfectly reasonable. The danger occurs when chronic deficit spending compounds into high debt-to-GDP ratios. Aging demographics, while a headwind against future growth, can also be thoughtfully managed. Serious problems arise when countries have become so indebted that they are unable to raise debt to bail out retirees who have, by and large, under-saved.

Even high debt can be paid down if borrowed money were deployed toward investing for the future, which would result in greater innovation and productivity; technological advances can sustain future growth and consumption even in the face of a declining work force. However, if the borrowed money were largely consumed to provide current prosperity rather than invested for future prosperity, then the mounting debt will be our ugly legacy to the future generations.

The 3-D hurricane is coming. With it will come high inflation rates, high costs for credit, low growth rates, and weakening developed country currency value. Ben Bernanke in a helicopter will not stop the hurricane's devastating path. More stimulus packages will not stop it. Blaming the Chinese for lending us too much money will not stop it. Pretending that the storm isn't coming will most assuredly not stop it.

8. Here's what happen when a nation goes bankrupt - Greece is now selling everything that isn't nailed down, and some more besides, the WSJ reports.

Debt-strapped Greece is about to hold an epic yard sale. For the taking: four wide-body Airbus jets, a state lottery, a state horse-racing concession and sports book, stakes in a casino, several ports, a national post office, two water companies, a nickel miner and smelter, a munitions maker, electricity and gas monopolies, a telecommunications operator, shares in a half dozen banks, hundreds of miles of roads, a defunct airport, old Olympic venues and thousands of acres of land, including magnificent stretches of Greece's famed coast.

But finding buyers for that grab bag of assets is likely to be a very tall order. Obstacles abound, including unions hostile to selling state-owned companies, citizens opposed to the privatization of state-owned land and a bureaucratic labyrinth that has long thwarted would-be developers.

To make matters worse, many of the available properties have already been offered for years, with no takers. Since 2000, Greece has netted some €10 billion from privatization. Now it must do five times that much in less than half the time.

9. Just default already - Wolfgang Muchau writes via the FT (BusinessSpectator) that Greece is being slammed up against a wall of austerity and now faces a choice of default next week or default next year.

One issue is the way privatisation proceeds will be used, he says.

The problem is that the entire process remains sensitive to sudden electoral mood swings in the creditor countries. 

The first priority of German, Dutch and Finnish politicians has been to reduce the costs of the programme as much as possible. They even went so far as to earmark uncertain Greek privatisation receipts as an integral part of the next finance package, rather than for debt reduction. Under the scheme now likely to be agreed, any shortfall in privatisation receipts would therefore open a finance gap. The creditor countries would then almost certainly ask Greece to plug the gap through even more austerity. Such a strategy is financially reckless and politically irresponsible.

10. Totally a video from The Onion on coal lobbyists' warnings that wind farms could blow the earth off its orbit...

In The Know: Coal Lobby Warns Wind Farms May Blow Earth Off Orbit