Friday's Top 10 with NZ Mint: America's US$7 trln growth gap; NZ's Companies Office system used yet again to commit fraud; A bond exodus from Southern Europe; Adult nappy sales surpass kids' nappy sales in Japan; Clarke and Dawe; Dilbert

Here's my Top 10 links from around the Internet at 4 pm   in association with NZ Mint.

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

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

My must read today is #3. Its a sobering read about Europe. Another one. Have a great weekend.

1. 23 years of weaker growth? - Anyone hoping (and forecasting) a rebound to 'normal' growth rates may have to wait a long time.

That includes John Key and Bill English.

Simply betting on economic growth, which seems to be what most of the western world is doing right now, may be a forlorn task.

Carmen Reinhart, Vincent Reinhart and Kenneth Rogoff (R3) say growth for indebted economies has been lower than 'normal' for an average of 23 years in the periods of high debt they studied since the early 1800s.

Here's the chart that shows what means for cumulative growth over that period. I've linked to a report on this study before, but it's still blowing my mind a little. Needs repeating.

The implications are profound. It means wholesale revaluations of assets and massive debt restructures. Sounds a lot like what Europe is going through right now.

Here's James Pethokoukis with his view:

This paper represents a deeper dive into the issue than previous research by Rogoff and Carmen Reinhart, though their general conclusion — high debt lowers growth — is the same. And the chart at the top of the post shows the cumulative impact of years of slower growth. There’s a big different between having a $21 trillion economy in 2035 and a $28 trillion one. Anyone have use for an extra $7 trillion?

Two other key points that R3 make:

1. Don’t wait for markets to freak out before cutting debt levels. “Contrary to popular perception, we find that in 11 of the 26 debt overhang cases, real interest rates were either lower or about the same as during the lower debt/GDP years. Those waiting for financial markets to send the warning signal through higher interest rates that government policy will be detrimental to economic performance may be waiting a long time.”

This observation fits well with one now being made by Eurasia Group. As the consulting firms sees things, the U.S. will continue to be able to finance its deficit and debt cheaply in part because of continued global safe haven status. “But while this is a benefit, it also ‘curses’ the U.S. into a period of fiscal complacency.” As long as rates are low, there will be little pressure for a “grand bargain” to cut debt, according to the firm. But as R3 show, that path may doom America to years or decades of subpar economic growth.

2. Another cracker from Michael Field - Fresh from exposing the Foreign Chartered Vessels scandal, Michael Field from Fairfax has dug again into what seems like a bottomless pit of New Zealand shell companies being used to commit fraud overseas.

When is the government going to act on this? It's bizarre that Commerce Minister Craig Foss still has confidence in the Companies office on this.

Another New Zealand shell company has been linked to an alleged fraud worth more than US$150m - this time involving Ukrainian state-owned companies.

The company, Falcona Systems Ltd of Albany, Auckland, was struck off the New Zealand Company Register last October but only after it was used to gain $150m in kickbacks for Ukrainian and Latvian officials, according to East European media reports.

The latest allegations involving New Zealand shell companies comes five days after Fairfax Media was told by the Latvia Finance Ministry that New Zealand had been struck off a European Union banking and corporate ''white list'' over our weak money laundering and terrorism financing controls.

3. Europe's bond exodus - The FT's Richard Milne reports on the run going on in Europe's bond markets and how it may be more important than any bank run.

JPMorgan analysts estimate €200bn of Italian government bonds and €80bn of Spanish bonds have been sold by foreign investors in the past nine months, more than 10 per cent of each market.

Matt King, a credit strategist at Citi, has gone further, peering into the detail of the infamous Target2 balances, which track cross-border payments in the eurozone. Much attention has focused on how Germany’s Target2 surplus has been increasing rapidly while peripheral eurozone countries’ deficits have soared. Mr King takes balance of payment data from each country, which shows all cross-border capital flows, and subtracts Target2 and other public sector flows to show how much foreign capital flight there has been. The results are pretty frightening.

Spain has seen €100bn of outflows, about 10 per cent of GDP, since the middle of last year. Italy has been even worse affected – the latest figures show €230bn has flown out of the country in the same period, close to 15 per cent of output.

Much of the selling has been done under the cover of the European Central Bank’s cheap-loans programme for banks, known as longer-term refinancing operations. Foreign investors have used the thirst from domestic bondholders for local paper to get out.

4. How you know your society has an ageing problem? - Sales of adult diapers in Japan have surpassed those of kids' nappies, Bloomberg's BusinessWeek reports.

And China is catching up fast. All this ageing helps explain #1 above too. A structral shift lower in economic growth is happening as populations age, the world fails to distribute income fairly and technologists fail to find new breakthroughs to boost productivity and economic growth.

Companies are rushing to grab a bigger chunk of the estimated 109 trillion yen ($1.4 trillion) that consumers over 60 spent in the year ended March 31 in Japan. The number of Japanese over 65 hit a record 23.3 percent of the population in October.

“We perceive this change as a golden opportunity for growth,” Shohei Murai, executive vice president of supermarket operator Aeon Co. (8267), told reporters in March. “In the ‘80s and ’90s, Aeon set families that were the massive majority in terms of population as its main target. Now the elderly are going to be the engine of consumption.”

Unicharm, Japan’s largest diaper maker, said it’s counting on just that. The Tokyo-based company said the lessons it’s learning in Japan will help its expansion in China, where the population at or above 65 rose to 8.87 percent of the total as of Nov. 1, 2010, up 1.91 percentage points from the 2000 census. China introduced a one-child policy in 1979 to curb population growth.

“China will necessarily face the aging society at a faster pace than Japan because of the one-child policy,” said Unicharm Chief Executive Officer Takahisa Takahara in April. “We have the responsibility to take Japan’s standards and spread it into Asia.”

5. Watch out for India - Reuters reports: "India faces mass default and restructuring as devaluation looms."

The headline caught my attention. The story itself is more nuanced, but still...

India's mounting economic and political woes are prompting market players to raise the specter of a Greek-style crisis in Asia's third largest economy.

This is not simply idle speculation. Last Friday, the rupee crashed to an all-time low against the dollar of 54.9 and it was stuck most of Tuesday at the psychologically significant Rs55/USD level, where the currency is seen as having no obvious technical support. And the implications of a rupee collapse would be immense.

"It could go to stratospheric levels against the dollar and it looks to me as if the Indian government is aiming at a de facto devaluation in an effort to prop up flagging economic growth. And you then have to worry about all the unpleasant boxes such an action would inevitably tick, such as straining further the country's already strained balance of payments as well as bringing on an almighty wave of inflationary pressure," said a credit analyst at a ratings agency in Singapore.

6. I want this guy on my side - This Reuters profile of bond lawyer Lee Buchheit is fascinating. He represented the Greek government in ...aaah.... negotiations with bondholders. More like he held the gun of default at their heads and restructured the debt.

Over the last 30 years, presidents and finance ministers have turned to Buchheit, 61, more than any other lawyer to help call off creditors when their governments run out of money.

His clients love him because he can help wipe away billions of dollars of debt. His legal opponents - bond investors, some of them so-called vulture funds - hate him for the same reason.

Among the folders in Buchheit's office is one labeled "VULTURES." It refers to investors who specialize in buying distressed debt and often end up battling Buchheit and Cleary in courts around the world for payment on the bonds they have bought, often at pennies on the dollar. There's no love lost.

"Yeah, they hate my guts," Buchheit said. The sting of the Greece write-down and particularly the way Buchheit engineered it has served to harden those positions. Some investors fear the increased use of collective action clauses has tipped the debt restructuring game in favor of governments over investors forever.

7. Chinese crackdown - CNN reports Chinese police have begun turfing out foreigners without their papers in recent weeks. Things are getting more heated in Beijing by the day as a leadership transition grinds through the gears. This is another reason why China may not be able to bail out Australasia again.

The crackdown has left a bitter taste in the mouths of many, not least those who have resided in the city for years and see it as home. Media worker Jacob Trent was pulled off his bike by the police on Saturday and demanded to produce his papers. "I have been living here for a decade and yet I still get treated like -- and sometimes called -- a foreign barbarian," lamented the American, who speaks perfect Mandarin and is engaged to a Chinese girl.

Another longtime expat, David Park, was equally distressed. "I have noticed a change in how I am treated. It has gone from curiosity to hostility," commented Park. The 27-year-old, an employee at a renewable energy firm, has been contemplating a move back to England. These events will make his decision easier, he said.

Lars Laaman, a professor of Chinese history at London's SOAS, who has lived in the capital on and off since the 1980s, says these incidents only occur when the government is feeling uneasy," he commented, alluding to events that have gripped the nation over the past few months such as the dramatic fall from power of Chongqing party chief Bo Xilai.

8. Under water - Think America's economy is going to recover any time soon? Check out this interactive map at Zillow showing which parts of the country are underwater on their mortgages and by how much.

In Clark County in Nevada (Las Vegas) 71% of houses are in negative equity.

9. Don't take your money out - The Guardian reports Greek police telling locals not to take their euros out of their bank accounts and stuff them in their mattresses.

They say this could be dangerous and lead to theft...

Watch out for a bank bailout over the weekend.

Greece's banks are likely to be shored up on Friday or Monday with €18bn (£14bn) of bailout funds they have been due to receive for weeks but which were held up by political uncertainty caused by inconclusive elections. Greece goes to the polls again on June 17, further stoking fears about its future within the euro.

The scale of withdrawals from Greek banks – almost 25% of deposits have been taken out in the past two years – and fears that other countries may suffer mass withdrawals has led to speculation that a eurozone-wide guarantee is needed to maintain confidence in the banking system.

Greece's national police spokesman, Thanassis Kokkalakis, told Reuters: "Many people have withdrawn their money from the banks fearing a financial crash, and they either carry it on them, find a hideout at home or in storage rooms.

"We urge people to trust the banking system, leave their money there, or at least in a safe place, not hide it at home, where they must anyway take the basic security measures."

10. Totally  Clarke and Dawe on the Western Australian Premier charging business leaders A$25,000 for a meeting...

He could do a cup of coffee and a croissant for A$23,000...