Top 10 at 10: Slow guarantee payouts; Chinese demand for NZ property may rise with yuan; Dilberts

Here are my Top 10 links from around the Internet at 10 past 1 pm. I welcome your additions and comments below or please send suggestions for Tuesday's Top 10 at 10 via email to bernard.hickey@interest.co.nz

1. Not so fast - Those people diving back in to guaranteed investments in finance companies should be aware repayment can take up to three months, as shown in the case of Vision Securities, the NZHerald reports.

Apparently Treasury had some issues dealing with the volumes.

They might have quite a few issues if South Canterbury went under and 30,000 investors wanted their money back pronto.

Treasury says delays are possible - particularly in the early stages of its process if it has to wait to get the information from the trustees and receivers.

"It is not unusual to find less-than-ideal record keeping and processes in companies that fail. When that happens, it can take the receivers, trustees and other parties involved a while to establish exactly what-is-what, who-is-who and how it all fits together.

"That inevitably means that the Treasury can't immediately get the initial information it needs to start the repayment process."

2. 'When a billion Chinese jump' - Here Jonathan Mirsky at the Literary Review has looked at a new book by former Beijing environment correspondent for The Guardian Jonathan Watts about the environmental disasters happening in China. It's called "When a billion Chinese jump: How China will save mankind or destroy it." It looks like an interesting book showing how 10% growth may be counter-productive. HT Rob Mackintosh via email.

China is destroying itself and threatening the rest of us. And, like useful idiots, we are helping the Chinese do it. It is hard to single out the most repulsive examples of self-destruction.Millions of tons of sewage down the Yellow River; the North China water table now sucked so dry that it has become nearly impossible to plumb; the squillions of acres of denuded grasslands and felled forests. The mind denies and goes numb. But some horrors can be comprehended because they are small.

What staggered me in his book was this: in the West we are suffering fear and loathing of the Chinese Century and China's impressive 10 per cent national growth, compared with our paltry advances.

But I didn't know that the World Bank, as Watts shows, has calculated the annual bill for Chinese pollution - health costs, premature deaths, damaged infrastructure and crops - at 5.8 per cent of GDP. That lowers the Chinese miracle to our level. And if you add in erosion, desertification and environmental degradation, the World Bank calculates there is an 8 to 12 per cent bite into China's GDP, stopping the miracle in its eroded tracks.

Watts suggests that if we factor in climate change and the gobbling up of non-renewable resources around the planet, 'it becomes conceivable that China's environmental crunch contributed to the global financial crash of 2008'.

3. A few more taxes - Economist Robert Frank has written in a New York Times Op Ed about a few ideas to raise taxes and to change the way government money is spent. I found myself agreeing with a few of them, including the idea of a consumption super tax on the very rich. Here's a few of them, including a massive debt restructure plan for credit card debt.

Some moral hazard issues, methinks, but certainly smaller than the big one handed over to the big banks. Seems only fair masses of poor people should be bailed out in tune with the small number of very rich people. The weak jobs numbers in America on Friday night are very worrying, not least for all those American workers still unemployed. QEII is not far off.

Although rates on 10-year Treasury bonds are only about 3 percent, many consumers still carry tens of thousands of dollars of credit card debt at 20 percent or more. This burden has been a continuing drag on spending. The federal government could reduce it by borrowing at 3 percent and lending to consumers at 8 percent under a one-time debt-restructuring plan. With their debt service payments cut by more than half, consumers could increase spending immediately.

And the five-percentage-point spread on money lent under the program would help cover its administrative costs, and maybe even relieve short-run government budget pressure. (Banks might complain, but because the money owed to them would be repaid in full, and because they insist that their high interest rates barely cover their costs, such complaints would ring hollow.)

4. And I thought I was bearish... - Elliot Wave theorist Robert Prechter thinks global stock markets are on the verge of a monumental selloff. So monumental that no one will be able to afford to buy monuments again. Here's the New York Times report. HT Kiwidave and Sargon Elias via email

Buy-and-hold stock investors will be devastated in a crash much worse than the declines of 2008 and early 2009 or the worst years of the Great Depression or the Panic of 1873, he predicted. For a rough parallel, he said, go all the way back to England and the collapse of the South Sea Bubble in 1720, a crash that deterred people “from buying stocks for 100 years,” he said.

This time, he said, “If I’m right, it will be such a shock that people will be telling their grandkids many years from now, ‘Don’t touch stocks.’ ” The Dow, which now stands at 9,686.48, is likely to fall well below 1,000 over perhaps five or six years as a grand market cycle comes to an end, he said. That unraveling, combined with a depression and deflation, will make anyone holding cash “extremely grateful for their prudence.”

5. Maybe it's all about oil - Most thought the rise in the cost of oil through 2007 and 2008 was not the major reason for the slide in the US and global economies because the 'energy intensity' of the US economy was much less than it used to be. This was due to the growth of services industries and the slide in manufacturing and energy-intensive industries. But maybe it was a problem after all, as this chart below from Gregor McDonald at gregor.us shows.

US energy expenditure as a proportion of GDP almost hit the 10% threshold.

6. Watch  the yuan - Alistair Helm has an interesting post over at unconditional wondering if the stronger yuan could lead to more Chinese investment interest in New Zealand property. He also has some fascinating charts on how Chinese use of realestate.co.nz rises and falls with the value of the yuan.

Analysing this data over the past 18 months shows a striking fact – that as the currency exchange rate between the NZ dollar and the Chinese Yuan has risen and fallen so the level of viewings by Chinese and Hong Kong based computers has followed an identical path.

7. Getting serious - The British government is now looking for its bureaucracies to cut spending by as much as 40% in coming years, an escalation of the previously announced cuts of 25%, The Telegraph reports.  HT Gertraud via email

The latest plans, if implemented in full, would see spending slashed to an extent rarely if ever attempted before in a Western democracy and would strike a massive blow at key areas such as the police, transport, energy, universities and business support. The order to cabinet ministers came last night as The Treasury prepared for intensive talks ahead of this autumn's Comprehensive Spending Review (CSR) which will set Whitehall budgets for the next four years.

8. Manufacturing the key? - Harold Meyerson at the Washington Post makes some curious points about how Germany and China are coming out of the crisis in the best shape because they have the best manufacturing sectors. America, meanwhile, is suffering because it gave up its manufacturing base, he says. HT Nigel Cottle via email. I'm not sure what the next step is. Trade barriers? I hope not.

What sets them (China and Germany) apart from the world's other major powers, purely and simply, is manufacturing. Their predominantly industrial economies meet their own needs and those of other nations, and have made them flourish while others flounder. This used to be true of United States, too. In 1960, manufacturing accounted for a quarter of our gross domestic product and employed 26 percent of the labor force.

Today, manufacturing has shriveled to 11 percent of GDP and employs a kindred percentage of the workforce. For the past three decades, with few exceptions, America's CEOs, financiers, establishment economists and editorialists assured us that the transition from a manufacturing to a post-industrial economy was both inevitable and positive: American workers would move to more productive jobs, and the nation's financial security would only grow.

But after rising steadily during the quarter-century following World War II, wages have stagnated since the manufacturing sector began to contract.

So even as Germany and China have been busily building, and selling us, high-speed trains, photovoltaic cells and lithium-ion batteries, we've spent the past decade, at the direction of our CEOs and bankers, shuttering 50,000 factories and springing credit-default swaps on an unsuspecting world. That's not to say our CEOs and bankers are conscious agents of foreign powers. But given what they've done to America, they might as well have been.

9. Death of the middle class - This is a hot issue in the United States, and I can understand why. John Robb at Global Guerillas puts his finger on something with this rant. How different is it here? HT Rob Mackintosh via email.

The most virtuous and exceptional feature of modern western civilization is that it created something new to history: an economically and politically dominant middle class. The stability (political), vibrance (economic growth and diversity), and innovation (technological) it produced is historically exceptional. Unfortunately, that singular accomplishment is soon to become a fond memory.

Why? The social contract that enabled this success, particularly the post WW2 social contract that shared the increases in wealth generated by improvements in productivity with the more productive workers that enabled it, ended with the financialization of economic activity and globalization (and governments that facilitated and catalyzed the process).

In sum, the increase in wealth the western middle class produced over the last three decades has been transfered to global financial elites (who misspent it) and mercantilist nations (China, Japan, Korea, Taiwan, etc.). We can see the result of this. It's tangible: The median income (the best measure of the health of the middle class) of the western middle class today is less than it was in 1974, despite massive top line GDP and productivity growth (both global and national) during the same period. The ongoing strangulation of the western middle class is at the heart of the west's current problems.

Everything else is fluff, misdirection, and hot air.

Its death creates, in the short to medium term: Economic stagnation/depression. An ever increasing loss of vibrance. Shrinkage, across the board. Wealth destruction. Inevitable government bankruptcy. An ongoing and inexorable shrinkage of the tax base that funds government activities.

Governments become slaves to global bond markets. Political instability. Increasingly fractious political discourse. Increasing violence. A rise in criminality and corruption.

10. Totally relevant video - This is a clever video showing what has happened to Vancouver house prices over the years. It's conclusion involves a watery grave for a few housing bulls...I quite enjoyed it.... HT Donald. 

11. Bonus! Totally irrelevant video - John Oliver from The Daily Show reports on the joy and love in the World Cup...