Friday's Top 10 at 10 with NZ Mint: 'ECB must act to save Europe from new Depression'; 'Snatching defeat from the jaws of victory'; 'Italian bank run?'; Clarke and Dawe; Dilbert

Here's my Top 10 links from around the Internet at 3 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.

And we have yet to see tonight's US jobs figures...buckle up...

1. 'ECB must step up to rescue Europe' - The dramas of the last couple of days in European financial markets have a few pundits reaching for the superlatives.

Citigroup Chief Economist Willem Buiter tells Ambrose Evans Pritchard at the Telegraph that unless the European Central Bank (ECB) acts decisively to buy Italian and Spanish bonds then Europe risks sinking into another Great Depression.

Yikes.

The big problem is the Eurozone doesn't have a common fiscal policy to go with its common monetary policy and it doesn't have the ability for governments to direct the central bank to help them fix their messes.

Problems with debt issued by different countries can only be dealt with by a central bank run by one government. The ECB isn't run by one government.

Here's Buiter laying the problem bare:. This is today's must read. Although he is (as a bank economist) essentially asking for the ECB and governments to bail out some large banks...

Mr Buiter said Europe risks a disastrous chain of events and the worst financial collapse since the onset of the Great Depression unless Europe's central bank steps in with sufficient muscle to back-stop the system.

"The ECB has yet so show it understands that it is the only institution that can save Italy and Spain from fundamentally unwarranted defaults. Everybody is afraid and real money investors are dumping their holdings. The ECB must step in to cap the yields at 6pc or 6.5pc and put a floor under the market," he said.

"As long as the ECB stays on the sidelines, a speculative, fear-driven withdrawal of market funding can feed a self-fulfilling insolvency. Any number of banks and insurance companies would take huge hits. The ECB will have to come in, or accept the biggest banking crisis since 1931," Mr Buiter said.

He said the "fundamental design flaw" in economic and monetary union is the lack of a lender of last resort.

2. 'Snatching defeat from the jaws of victory' - FTAlphaville points out another criticism of the ECB by Brown Brothers Harriman, just to give you a flavour.

The Governing Council’s discretionary decision to exclude Italy and Spain from the ECB’s SMP, at least at this point, leaves the EU’s safety net woefully inadequate against the growing market contagion. The ECB has, as they say, snatched defeat from the jaws of victory.

This will have two-fold implications, both bearish for the euro. First, from the EU’s perspective, the ECB’s protection of its own capital leaves the EFSF as the only “lender of last resort” to governments. Yet, the EFSF, currently with a ceiling of €250bn, has neither the capacity nor the flexibility to enact market stabilisation measures scalable to Italy and Spain – the political agreement of the July 21 EU emergency summit has yet to be ratified by national governments and parliaments and implemented. At a time when the markets remain focused on systemic risks rather than rates, this leaves Spanish and Italian government bonds, and the euro, widely exposed to market speculative pressures.

The second implication is the global one. The ECB has as anticipated joined the international circuit of central banks fighting market dislocations along the extremes of the global crisis, from the strongest links of the G10 (JPY, CHF) to the weakest one (the euro zone periphery). Yet, the ECB’s response has proven woefully inadequate to complete the turn of market momentum attempted by the SNB and the BoJ. A crisis defence is only as strong as its weakest link

3. 'Italian bank run' - CNBC's Larry Kudlow says the Euro slumped vs the Swiss Franc this morning because there was a silent run going on in Italy's banking system...

Here's Tyler citing Kudlow at Zero:

 "Sources tell me Italy has to restructure bonds.Deposit run on Italian banks.EU will have to mount Tarp rescue.Big stress on interbank loans." Basically, this is the worst possible combination for Europe which means that another bailout is not only imminent but has to happen tomorrow.

Incidentally Reuters is reporting of an emergency meeting between Sarkozy and Merkel and Zapatero on "the markets" which can only mean damage control following today's disastrous Trichet performance.

4. 'God I'm so wasted' - The Onion has some fun imagining US Federal Reserve Chairman Ben Bernanke getting a little sloshed at his local bar...

Bernanke, who sources confirmed was "totally sloshed," arrived at the drinking establishment at approximately 5:30 p.m., ensconced himself upon a bar stool, and consumed several bottles of Miller High Life and a half-dozen shots of whiskey while loudly proclaiming to any patron who would listen that the economic outlook was "pretty goddamned awful if you want the God's honest truth."

"Look, they don't want anyone except for the Washington, D.C. bigwigs to know how bad shit really is," said Bernanke, slurring his words as he spoke. "Mounting debt exacerbated—and not relieved—by unchecked consumption, spiraling interest rates, and the grim realities of an inevitable worldwide energy crisis are projected to leave our entire economy in the shitter for, like, a generation, man, I'm telling you."

After launching into an extended 45-minute diatribe about shortsighted moves by "those bastards in Congress" that could potentially exacerbate the nation's already deeply troublesome budget imbalance, the Federal Reserve chairman reportedly bought a round of tequila shots for two customers he had just met who were seated on either side of him, announcing, "I love these guys."

5. Why it didn't work - Peter Allen, Barry Eichengreen and Gary Evans do a great job at Bloomberg of explaining why the markets don't believe the second Greek rescue deal will work.

This is a precursor to why markets are so disillusioned with the official responses to the European debt crisis.

The debt-reduction deal failed because it didn’t reduce the debt. Instead, Greece gets a reduction in interest rates and a lengthening of maturities on its loan from the European Financial Stability Facility. But that loan also has been supersized, and the country has to pay back the additional official debt. The government in Athens also gets a 20 billion-euro ($28.7 billion) bond-buyback program funded by the EFSF. But again, the country will have to repay the money used to finance the buybacks, plus 3.5 percent interest.

Obviously, this is a raw deal for Greece. It also is a bad deal for the euro area, whose leaders again failed to contain the crisis. And it is a bad deal for the European taxpayer, who will shoulder all the sacrifices, while the banks make none.

How could things have gone so wrong?

One answer is that none of the participants involved -- the EU, the French and German leaders, the Institute of International Finance -- knew what they were doing. A 21 percent reduction in net present value sounds impressive, but it has no bearing on the amount by which the exchange will reduce Greece’s debt. No one appreciated that 30-year zero-coupon bonds are much more expensive in today’s low-interest-rate environment than they were 20 years ago, in the days of the Brady Plan. No one understood that the debt exchange effectively increased Greece’s annual interest payments once the cost on the debt to purchase the principal collateral was taken into account.

6. Ya don't say - Even the US Treasury acknowledges in this Bloomberg story that the US dollar is losing its reserve currency status.

The Treasury Borrowing Advisory Committee, which includesrepresentatives from firms ranging from Goldman Sachs Group Inc. to Pacific Investment Management Co., said the outperformance of haven currencies and those from emerging nations has aided in the debasement of the dollar’s reserve status, according to comments included in discussion charts presented ahead of the quarterly refunding. The Treasury published the documents today.

“The idea of a reserve currency is that it is built on strength, not typically that it is ‘best among poor choices’,” page 35 of the presentation made by one committee member said. “The fact that there are not currently viable alternatives to the U.S. dollar is a hollow victory and perhaps portends a deteriorating fate.”

7. 'American banks cutting loans to Europe' - Institutional Risk Analyst's Chris Whalen tells CNBC that US regulators are forcing US banks to cut lending to European banks.

"I have been speaking to risk managers at the big European banks telling me that US regulators are forcing American lenders to cut counterparty loans."

8. The Fed doesn't have room to move - Former Fed economist Vincent Reinhart says the Fed doesn't have room for QE III here at Bloomberg.

9. Totally a rap video about the debt ceiling - This debate really did seep throughout American culture.

10. Totally Clarke and Dawe - Talk about the debt ceiling debate and why they run a current affairs programme with no script...