Wednesday's Top 10 with NZ Mint: The Purple Palace of Ordos and the Too Big To Fail shadow banks; Why QE is not working; The austerians are wrong; Dilbert

Here's my Top 10 links from around the Internet at 1pm 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 is #9 on why QE is not working.

1. The Purple Palace of Ordos - Bloomberg reports on what's going on inside China with its new investment trust sector.

They look awfully like our finance companies and we know how well that turned out.

Trusts promise Chinese savers 10% returns and then lend the money on to property developers.

They then flick on their apartments at a high short term profit and repay the interest only loans within a couple of years.

It all works fine until it doesn't.

Here's how it's going in Ordos, the ghost city in the West of China.

The developer, Ordos Jin’ao Property Development Co., owes a lot more than the 10,000 yuan ($1,604) Niu is trying to collect, and it isn’t only suppliers who are out of the money. Dozens of investors nationwide have put 445 million yuan of savings into funding Purple Palace’s construction.

The two-year investment vehicles they purchased, called trusts, promised an annual interest rate of at least 10 percent and return of principal in March 2013. With at least 1,000 similar projects having ground to a halt this year in Ordos, where over-investment has resulted in a building boom gone bust, tens of thousands of investors risk default.

“The risks are significant there, and something must be done by the government to stop potential defaults of property trusts from spreading nationwide,” said Lian Ping, an economist at Shanghai-based Bank of Communications Co. “Trusts have become too large to fail.”

2. A drastically hotter planet - SMH reports on a major new analysis of the effects of climate change.

The World Bank has warned the planet is on track to warm by four degrees Celsius this century - causing increasingly extreme heat waves, lower crop yields and rising sea levels - unless significant action is taken to cut greenhouse gas emissions. In a major report released ahead of the year-end United Nations climate summit in Qatar, the bank says changes associated with four degrees of warming would have dramatic and devastating effects on all parts of the world, including Australia, but that the poor would be most vulnerable. Scientists say global warming must be kept within two degrees of pre-industrial temperatures to give the world the best chance of avoiding the worst impacts of climate change.

3. A big money laundering issue - WSJ reports on the problems in China with illicit cashflows and money laundering.

4. China's bad debt headache -WSJ reports on a growing problem inside China's banking system.

5. I the people - Xi Jingping is trying to be as populist as a communist dictator can be, Evan Osnos from the New Yorker says.

6. A zero% population growth rate by 2030 - That's the prediction from Jeremy Grantham in this enlightening interview with Charlie Rose via Businessweek.

The world is underestimating the bite of a declining population. They think that growth is going to bounce back after this mess. And it just ain’t so. The growth rate in the global population—let’s say the peak was 1971, 2.1 percent global growth—is now 1.2. In 30 years it’s going to be zero.
 
Zero?
Yeah, the global population is generally reckoned to peak in about 2040, 2050, maybe 2060. In addition, people are working fewer hours. And the aging of our population is severe, starting about now. So per capita, you simply have fewer people in the 20-to-65 age group, population slowing, working less hours—it’s becoming a pretty decent-size drag on the economy.

7. Oh how wrong they were - Austerians at the OECD predicted governments in Europe and America could reduce their fiscal stimuli and still see economic growth.

Paul Krugman looks at what actually happened.

8. US corporate deleveraging? - Not so much, says Marc Prosser at Learnbonds.

9. Why QE is not working - Here's Economonitor with an excellent discussion on this.

A lot of people—including policy makers—exhort the banks to “lend out the reserves” on the notion that this would “get the economy going”. There are two problems with that. First, banks can lend reserves only to other banks—and all the other banks have exactly the same problem: too many reserves. A bank cannot lend reserves to your household or firm. You do not have an account at the Fed, so there is no operational maneuver that would allow you to borrow the reserves (when a bank lends reserves to another bank, the Fed debits the lending bank’s reserves and credits the borrowing bank’s reserves). Unless you are a bank, you cannot borrow them.

The second problem is that banks don’t need reserves in order to lend. What they need is good, willing, and credit-worthy borrowers. That is what is sadly lacking. Those who are credit-worthy are not willing; those who are willing are mostly not credit-worthy.

And we should be glad that banks are not currently lending to the uncredit-worthy. Here’s why: that’s what got us into this mess in the first place.

Indeed, the mountain of debt that US households are buried under makes the whole Bernanke notion that we need to get banks lending again just plain ludicrous. I don’t want banks to lend. I don’t want households to borrow. What we need is to work off the private debt—pay it down or default on it.

10. Totally Jon Stewart on the political implications of married vs single women.