Friday's Top 10 with NZ Mint: 'Grandpa Wen' Jiabao's family worth US$2.7 bln; The new 'Red Pill' of economics; Japan's own fiscal cliff; Australian finance company collapse; Dilbert; Clarke and Dawe

Here's my Top 10 links from around the Internet at 2.00 pm today in association with NZ Mint.

As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must read article today is #1 on how China's corruption is massive, endemic and goes right to the top.

1. How China really works - The New York Times' David Barboza has an excellent report on how the family of China's Prime Minster Wen Jiabao is now worth at least US$2.7 billion.

This money was amassed in the last decade or so since he rose to a high position in the late 1990s. The details in the report are extraordinary. It will leave a deep impact.

The widening revelations about the scale of the corruption in China has been a central theme of the last year or so. The Bo Xilai scandal just ripped the scab off the top.

The lead-up to next month's once-in-a-decade leadership transition in China has unleashed significant tensions and capital movements within and out of China. Many officials are shifting assets and family members out of China and into boltholes in 'safe' countries in case the new boss decides to confiscate all the loot and implant a lead implant at high velocity into the cranial cavity of the alleged corrupt official...

The Peoples Bank of China estimates corrupt officials and their families have shifted US$125 billion out of China since the late 1990s.

Where is it going? Mostly into foreign property, including no doubt, some in New Zealand. The May Wang case is an interesting highlight. Her background and connections in China were decidedly murky.

Here's Barboza's report:

The mother of China’s prime minister was a schoolteacher in northern China. His father was ordered to tend pigs in one of Mao’s political campaigns. And during childhood, “my family was extremely poor,” the prime minister, Wen Jiabao, said in a speech last year.

But now 90, the prime minister’s mother, Yang Zhiyun, not only left poverty behind — she became outright rich, at least on paper, according to corporate and regulatory records. Just one investment in her name, in a large Chinese financial services company, had a value of $120 million five years ago, the records show.

The details of how Ms. Yang, a widow, accumulated such wealth are not known, or even if she was aware of the holdings in her name. But it happened after her son was elevated to China’s ruling elite, first in 1998 as vice prime minister and then five years later as prime minister.

Many relatives of Wen Jiabao, including his son, daughter, younger brother and brother-in-law, have become extraordinarily wealthy during his leadership, an investigation by The New York Times shows. A review of corporate and regulatory records indicates that the prime minister’s relatives, some of whom have a knack for aggressive deal-making, including his wife, have controlled assets worth at least $2.7 billion.

Apparently 'Grandpa Wen' isn't happy about this...

As prime minister, Mr. Wen has staked out a position as a populist and a reformer, someone whom the state-run media has nicknamed “the People’s Premier” and “Grandpa Wen” because of his frequent outings to meet ordinary people, especially in moments of crisis like natural disasters.

While it is unclear how much the prime minister knows about his family’s wealth, State Department documents released by the WikiLeaks organization in 2010 included a cable that suggested Mr. Wen was aware of his relatives’ business dealings and unhappy about them.

“Wen is disgusted with his family’s activities, but is either unable or unwilling to curtail them,” a Chinese-born executive working at an American company in Shanghai told American diplomats, according to the 2007 cable.

Grandpa Wen has a high flying son...

Late one evening early this year, the prime minister’s only son, Wen Yunsong, was in the cigar lounge at Xiu, an upscale bar and lounge at the Park Hyatt in Beijing. He was having cocktails as Beijing’s nouveau riche gathered around, clutching designer bags and wearing expensive business suits, according to two guests who were present.

In China, the children of senior leaders are widely believed to be in a class of their own. Known as “princelings,” they often hold Ivy League degrees, get V.I.P. treatment, and are even offered preferred pricing on shares in hot stock offerings.

They are also known as people who can get things done in China’s heavily regulated marketplace, where the state controls access. And in recent years, few princelings have been as bold as the younger Mr. Wen, who goes by the English name Winston and is about 40 years old.

A Times review of Winston Wen’s investments, and interviews with people who have known him for years, show that his deal-making has been extensive and lucrative, even by the standards of his princeling peers.

State-run giants like China Mobile have formed start-ups with him. In recent years, Winston Wen has been in talks with Hollywood studios about a financing deal. Concerned that China does not have an elite boarding school for Chinese students, he recently hired the headmasters of Choate and Hotchkiss in Connecticut to oversee the creation of a $150 million private school now being built in the Beijing suburbs.

2. 'We may be looking at an equities bubble' - PIMCO CEO Mohamed El Irian, who is always worth listening to, tells Bloomberg the equities market may be in a bubble, thanks to all this money printing.

3. What the US Presidential Campaign feels like - Here's an example of the sort of political activity in America happening online ahead of the November 6 election. There's a real battle going on for the votes of young and old women. The video responds to the comments referred to in the cartoon below.

4. Japan has a fiscal cliff too - FT.com reports on how the Japanese government is about to run out of money...

The Japanese finance ministry will hold crisis talks with bond dealers in the world’s largest government debt market on Friday, amid growing fears about the impact of a political stand-off on the nation’s finances. In an echo of worries in the US over the fiscal cliff – the $600bn of spending cuts and tax increases due to take effect in January – Japanese politicians are at loggerheads over a bill that would allow the government to borrow the Y38.3tn ($479bn) needed to finance the budget deficit this year.

Bond dealers said they had requested the special meeting with the Ministry of Finance to express their concerns about the stand-off and discuss possible contingency plans. “Political developments are becoming a real fear for the markets,” said Chotaro Morita, chief rates strategist at Barclays in Tokyo.

Ikuko Shirota, a senior finance ministry official, told the Financial Times that failure to pass the bill by the end of November could result in a “very disastrous situation”. Ms Shirota said scheduled bond auctions would have to be scrapped for the first time in decades, meaning the Japanese government – the world’s most indebted with gross borrowings of Y976tn at the end of June – would run out of money.

5. The 'Red Pill' of Economics - There is quite a discussion developing around the idea that central banks could just cancel the bonds they buy in quantitative easings off government, thus solving the world's debt problem in one easy swipe...

Here's Joe Wiesenthal at Business Insider with some musings...

He's referring to the 'red pill' that Neo took in The Matrix to change his view of the world...

If you start thinking about the possibility that the central bank could just rip up a government's debt, with few negative ramifications, then you might start thinking about government finances in a totally new way that makes you uncomfortable.

You might start to realize that this whole construct of a broke government, deeply in hock to the Chinese (and everyone else) is an illusion, that complete distorts the realities of sovereign finance.

But it's too late. More and more people are taking the red pill, and thinking about this question.

Want proof? In her latest note, SocGen economist Michala Marcusen reveals the #1 question that clients are asking. With each new round of QE coming with diminishing returns, a new question is emerging ... Can central banks just cancel their government debt holdings?

5. How is it different from the current QE? - Here's Joseph Cotterill at FTAlphaville thinking aloud about what the 'Red Pill' might mean and how's it's different from the current QE.

How is it economically any different than what is probably the status quo exit strategy from QE? That would amount to central banks going on holding bonds, accumulating flows of cash from them, and just paying out any eventual profits to the governments which are their owners and shareholders. What additional fiscal benefit would there be to writing the bonds off right now?

We can’t see the difference. Which is a little annoying when “cancellation” is being seen as either an omen of the coming debasement, or as a mind-blowing “red pill” for jaded wonks. Neither seems to ring true, nor does either reflect the really interesting stuff about the fiscal effects of QE, as they exist already.

6. Australia's own finance company meltdown? - Weekly Times Now reports Australian finance company Banksia Securities Ltd was put into receivership overnight. It owes A$660 million to retail investors across rural Victoria.

The word 'debenture' and references to trustees cropped up. I haven't seen that combination in a while. Made me shudder a little.

McGrathNicol has been appointed as receivers and managers and will liase with trustee The Trust Company to "ensure the interests of debenture holders are being protected".

7. Not much fun for Tiwai Point - Bloomberg reports that aluminium stockpiles in China have hit a two year high amid a glut. This won't help the negotiations with Meridian Energy and casts a fresh cloud over the future of the smelter. It's the last thing the South Island economy needs.

Reserves in Shanghai, Wuxi and Hangzhou, and in Guangdong province gained to about 940,000 metric tons as of Oct. 22, the highest since September 2010, according to Wen Junxiang, head of the research department at Guangzhou KT Commodity Information & Consulting Co. Stockpiles more than doubled this year to about 1 million tons, the largest since July 2010, said Zhang Chenguang, an analyst at data provider SMM Information & Technology Co.

The estimates add to signs of a glut in the second-largest economy as new capacity, especially in the west, helps to boost output to the highest ever even as China’s manufacturing shrinks. Aluminum in London has dropped 13 percent over the past year, and Alcoa Inc. (AA), the largest U.S. producer, cut its forecast for global demand growth this month as China’s economyslowed.

The increased inventories may force smelters around the world to cut output further. Alcoa said in January it was reducing capacity 12 percent. Rio Tinto Group (RIO) said in November it would close the Lynemouth smelter in the U.K. The lightweight metal is used to make autos and consumer appliances.

8. 'Show me the gold' - John Carney writes more at CNBC about a German court's attempt to get the Bundesbank to check its gold stocks in America actually exist.

He points out the Germans may be better off not asking, just in case it's not there....

This paranoia is not entirely irrational, for one reason. As I mentioned above, for almost all imaginable operational purposes, the actual existence of the gold in Fort Knox or in the vault beneath the FRBNY’s Liberty Street headquarters is irrelevant. The bookkeeping is what really matters here. So long as the Fed says Bundesbank owns X tons of gold, the Bundesbank can act as if it did own the gold—even if the gold had somehow been swallowed into a gold-eating galactic worm hole. But the irrelevance of the facticity of the gold does quite easily lend itself to thinking: if the gold being there doesn’t matter, why would it be there?

(Read more: The Gold Standard and the Myth of Price Stability)

I’m sure the Bundesbank officials understand this quite well, even though the German Audit Court does not. There is nothing to be gained by inspecting the gold. If it is all there and pure, there is no difference from an undiscovered absence. But if the gold isn’t there, well, calamity could follow as trust in the central bank gold depositories evaporated instantly.

9. 'Too many jelly donuts' - NYTimes' Dealbook reports hedge fund manager David Einhorn as saying QE has stopped working.

Here he is chatting in the video below at an Economist gathering.

Mr. Einhorn insisted that the Fed, by keeping interest rates near zero, was hurting savers and therefore stifling spending and other economic activity. His argument on Thursday echoed the critique of the Fed in Greenlight’s latest quarterly letter, which compares recent central bank policy to American Express cards.

Mr. Einhorn has been building this argument for some time. In May, he said in a blog post on The Huffington Post that the Fed’s easy money was like an excess of jelly doughnuts.

10. Totally Clarke and Dawe on the world cycling crisis - 'We had no idea there was any drug-taking going on at all.'

"It was astonishing."