Tuesday's Top 10 with NZ Mint: Why the NZ$ needs a Brazilian; Italy 2% away from disaster; Euro extend and pretend; Rare American Double Eagles; Dilbert

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

Wolly is being very rational today...

1. Brazilian capital controls - Bloomberg reports Brazil's real fell after the central bank there introduced new capital controls to try to push the currency down.

Brazil realises it is being killed by the Dutch Disease.

Its manufacturing sector is being wiped out as US and Chinese money printers devalue their currencies.

It has described what the Americans and Chinese are doing as acts of currency war.

Yet we in New Zealand (or at least the RBNZ, the Treasury and John Key) seem remarkably relaxed about a record high currency.

There are many more consumers who vote than exporters, it seems

But what about the future for our kids? How will be earn enough to service our foreign debts and generate high paid and interesting jobs.

Here's what the Brazilians have done.

Brazilian policy makers said they will require banks to make non-interest bearing deposits with the central bank equivalent to 60 percent of short dollar positions that exceed $1 billion or their capital base, whichever is smaller.

The rule, which banks will have five working days to implement, amends a regulation introduced in January that required banks to pay deposits on short positions above $3 billion. A short position is a bet that the price will fall.

Banks in Brazil may have to unwind as much as $5 billion of short U.S. dollar positions by selling forward contracts on the dollar to comply with the new requirements, according to Kenneth Lam, a Latin America strategist with Citigroup Inc. in New York.

2. 2% away from disaster - Bloomberg reports Gary Jenkins from Evolution Securities saying Italy's bond yields only need to rise another 200 basis points or 2% for Italy to need a bailout.

“It is worth remembering how quickly bond yields can get out of control by looking at what happened to Greek, Irish and Portuguese 10-year yields,” said Jenkins, who predicted Greece’s bailout last year and who was formerly head of fundamental credit strategy at Deutsche Bank AG and global credit-research chief at Barclays Capital.

“What would keep me awake at night if I was a European finance minister is that we are only about 2 percent away from a potential disaster scenario.”

3. American deflation - Chris Whalen writes at Reuters about how a US default may not be the end of the world and why we should brace for deflation in America.

If it takes a financial crisis to change the fiscal behavior of the US, then so be it. You need courage to say no to more debt, but it is easy to borrow. The people of the US have the right and even the obligation to withhold approval of issuing further debt issuance unless real changes are made in federal spending.

The Democratic party headed by Obama is making common cause with the large banks and corporations in the US to raise the debt ceiling without making significant cuts in federal spending. Big companies hate spending cuts, but don’t really worry about things like inflation. This quarter’s earnings is all that matters.

As the two institutional political parties wrestle over national spending, and paying attention only to each other, the US economy is entering a new and potentially dangerous period of deflation. The continued process of de-leveraging in the financial sector is causing banks to shrink and credit availability to dry up. And the government is about to make things a lot worse by allowing the conforming limit for loans sold by banks to federal housing agencies like Freddie Mac and Fannie Mae to fall dramatically.

The impending decrease in the conforming loan limit will accelerate the drop in home prices this year, adding fuel to the fires of deflation. Even as President Obama and the Democrats draw a line in the sand against spending cuts, the inattention of the White House to accelerating deflation in the housing market is creating a new crisis.

4. The contagion risk - RBS Chief European Economist Jacques Cailloux talks at Bloomberg about the contagion spreading to Italy.

He says Italian bank tress test results will come out on Friday....

He talks about a massive loss of confidence in the bond markets and a buyer of last resort...

He talks about a vicious feedback loop between the bond markets and banks... The talks about how to solve it will drag on to September at least, he says...

5. 15 years to fix - Reuters reports Germany's President Christian Wulff saying Greece's debt problems could take 15 years to fix.

Wulff, a former leader in Chancellor Angela Merkel's conservative Christian Democrats and now Germany's ceremonial head of state, told ZDF television that there was a need for "an overall concept" for resolving Europe's debt crisis.

"It can't be something that will suffice for a three month period but rather has to offer solutions to the problem that to cover the next 10 to 15 years," Wulff said.

"And Greece will need a lot more time period than one in Europe is currently willing to acknowledge," said Wulff

6. Chinese scandals - Moody's has warned investors about the poor governmance and accounting risks at 49 Chinese-based companies.

"Weak corporate governance may lead to decision-making processes that favor the interest of some or all shareholders at the expense of bondholders and other creditors," Moody's said.

Predominant family control makes it difficult to get a clear view of a company's corporate governance practices, the rating agency said.

Moody's said it screened 49 junk-rated companies and a few investment-grade firms in China against 20 red flags, grouped into five categories: weak corporate governance, risky business models, fast-growth strategies, poor earnings quality and audit concerns.

7. American drought - NYTimes reports America is facing a drought that could be as bad as the one seen during the Depression that created dustbowls across the United States.

This could further boost beef prices.

Climatologists say the great drought of 2011 is starting to look a lot like the one that hit the nation in the early to mid-1950s. That, too, dried a broad swath of the southern tier of states into leather and remains a record breaker.

But this time things are different in the drought belt. With states and towns strapped for cash and unemployment still high, the stress on the land and the people who rely on it for a living is being amplified by political and economic forces, state and local officials say.

As a result, this drought is likely to have the cultural impact of the great 1930s drought, which hammered an already weakened nation.

“In the ’30s you had the Depression and everything that happened with that, and drought on top,” said Donald A. Wilhite, director of the school of natural resources at the University of Nebraska in Lincoln and former director of the National Drought Mitigation Center. “The combination of those two things was devastating.”

8. Extend and pretend - Zerohedge points out that Europe may increase its bailout fund from 440 billion euros to 1.5 trillion euros, SocGen reckons.

German daily Die Welt reported on Monday an unnamed ECB official suggesting that the EFSF should be increased from its current €440bn to €1.5 trillion.

Should the crisis really spread as far as Italy and Belgium, then this figure is not that far wide of the mark. We estimate Spain’s total financing need over the next three years to be around €380bn; Italy’s financing need is considerably larger at €630bn while Belgium’s financing need over the next three years would be around €150bn.

Including the €44bn already committed to Ireland and Portugal, and potentially a further €85bn for Greece, the EFSF would need to be roughly doubled to just over €850bn (assuming the IMF would be prepared to provide one third of the official financing). Without the IMF, whose participation cannot be guaranteed, the EFSF would have to be expanded to €1.3 trillion.

In order to maximise the lending capacity of the EFSF, this would mean the AAA-rated countries would have to guarantee 172% of the lending which would potentially imply a contingent liability of between 25-45% of GDP – depending on whether the IMF were involved or not. Such numbers are huge and must raise serious questions as to whether practically the EFSF could be adequately dimensioned to cover the financing needs of Italy, Spain and Belgium.

SocGen also points out the austerity programme is failing all over Europe, with Greece already falling short of its targets.

The failure of the strategy of pursuing ever greater austerity is plain for all to see with the latest Greek fiscal numbers suggesting that the public deficit had widened to €12.8bn in the first six months of the year compared to a program target of €10.3bn. Public sector spending was up 8.8% y/y, principally due to higher interest payments and payment of arrears to hospitals.

Net revenues dropped 8.3% which the finance ministry attributed to the deeper than expected recession.

9. Please send me a Double Eagle - In the depths of the Great Depression US President Roosevelt made it illegal for US citizens to own gold, which made the ownership of a Double Eagle gold coin in private hands very rare. Now Bloomberg has a piece on how valuable these coins have become.  

The 10 rare Double Eagle gold coins at the heart of a federal trial in Philadelphia are remnants of the last U.S. government default, almost eight decades before the current stalemate in Congress over raising the debt limit.

“The government is broke and, eventually, they will dig into everyone’s pockets,” said Tobina Kahn, the vice president of House of Kahn Estate Jewelers in Chicago. “Anyone who puts money into gold coins has no confidence in the government or fiat currencies.”

A single 1933 Double Eagle believed to have once belonged to King Farouk of Egypt sold at auction in 2002 for $7.59 million, according to the court filings. The government minted fewer than 500,000 of the $20 coins in 1933, and all were ordered to be melted, according to the U.S. Mint.

10. Totally a video about rescuing a cat with a leaf blower.