Top 10 at 10: Carry trade crackdown; US debt tipping point; Westpac CEO's new mansion; Dilbert

Here are my Top 10 links from around the Internet at 10am. I welcome your additions and comments below or please send suggestions for Wednesday's Top 10 at 10 to bernard.hickey@interest.co.nz 1. Boom time bubble - China's biggest worry is a bubble in the real estate sector, an advisor to the People's Bank of China, Fan Gang, has warned, according to Bloomberg. Think they might be committed to tightening monetary policy? You bet.

Moves by the central bank this year to curb liquidity were "timely and necessary," Fan told a forum in Beijing today. "Although globally we're still talking about the crisis, China and some developing countries now are facing another boom time." Stocks fell in Asia and Europe today on speculation that Chinese policy makers will do more to cool the world's fastest- growing major economy after two reports showed a sustained rebound in manufacturing and rising prices. Excess liquidity is a "problem" as low interest rates and slower growth in the U.S. and Europe encourage money to flow into China, said Fan, the academic member of the monetary policy committee.

2. Bust in 2012 - Andy Xie is an economist who watches China closely and is watched closely by others. He is picking an eventual surge in inflation and a delayed bust in 2012.

This round of financial capitalism won't last. The lag between printing money and inflation may be long in the era of globalization, but it will come. China was a disinflationary force for a decade due to large quantities of surplus labor and over investment; American prices for manufactured goods declined to China's level through factory relocation. This process is over. China's prices are the world's; its production costs are sure to rise as manual labor dries up and land prices rise. China can no longer hold back inflation during a period of rapid monetary growth. Global inflation will begin to rise next year. Central banks may raise interest rates, but they will be behind the curve "“ rates will rise slower than inflation. At heart they will want to maintain loose monetary policies to help growth. Raising rates will be propaganda for cooling inflation expectations "“ fooling savers into holding onto depreciating bank deposits. But procrastinating about fighting inflation will only cause inflation to surge. By 2012, inflation might be high enough to cause public panic. Central banks will be forced to raise rates quickly, and a second financial collapse could follow. The world had a near-death experience in 2008. It may not be so lucky in 2012.

3. Compulsory Treasury buying? - This story won't go away. There are moves afoot within the US Department of Treasury to change the rules around tax-preferred savings to 'encourage' savers with 401K and IRA plans to buy annuities, which are often based on US Treasuries. This looks like the government forcing the public to buy government bonds, Zero Hedge points out in conspiratorial tones. We'll see. But it would be one way to make the deficit go away and reduce the reliance on China. 4. Trucking pirates - America is in a real state. Now pirates are stealing whole trailer units from trucks, with goods included, the Wall St Journal reports. 5. CRE bust - Democratic congressman Paul Kanjorski, who  is also head of the House's Financial Services Subcommittee, has sent a bipartisan letter signed by 77 other congressional leaders calling on the Fed and Treasury to address growing concerns about a bust in the commercial real estate market and its impact on small banks and small businesses. Here's a few excerpts.

"The growing bubble in the commercial real estate industry has the potential to infect our economy and slow a recovery," said Chairman Kanjorski. "In order to safeguard the businesses operating on Main Street and protect the millions of jobs depending on commercial real estate, the Treasury and the Federal Reserve now must take needed and urgent action to stave off a potentially devastating wave of commercial real estate foreclosures and bank losses." "I am deeply concerned about the health of our commercial real estate market and the stability of thousands of small businesses across the country," said Congressman Calvert. "We must take the appropriate steps to ensure that our commercial real estate market does not experience a liquidity crisis that would further exacerbate our struggling economic situation." The $6.7 trillion CRE sector supports 9 million American jobs. If the conditions in the CRE market deteriorate further the negative effects will be significant and widespread, rippling not only through the CRE sector but also the broader economy. More than $1.4 trillion in commercial mortgages will come due by 2013, and as much as 65% of those deals will have trouble getting refinanced according to recent analysis conducted by Deutsche Bank. While the Federal Reserve and Treasury Department have acknowledged the ongoing CRE challenges, their actions have so far failed to ease growing concerns among economists and market participants.

6. Mish notices Demographia - Mike 'Mish' Shedlock has linked to Demographia's survey of housing affordability, which is produced by New Zealander Hugh Pavletich and American Wendell Cox. Mish thinks America is still unaffordable, but doesn't question the 'rest of the world' results.

In terms of national unaffordability (the team competition) Australia wins the gold medal, New Zealand, the silver medal, and the UK wins the bronze medal. Because of a preponderance of "affordable" cities in the US and the way the national rankings are made, I question the results of the national survey although it likely did not affect the top three medal-winning rankings.

7. Head slapping moment - The US Federal Reserve has designed a training module on its website for new directors of banks that begins by assuming they have no experience in banking and need to be told what a bank is...Oy vey... HT FTAlphaville and Kevin at interestratenews.com.au

"Many people who are asked to serve on bank boards have little training or experience to prepare them for their new roles," said Patrick M. Parkinson, director of the Federal Reserve Board's Division of Banking Supervision and Regulation. The only thing that may be missing is a basic knowledge of banking and what to consider in overseeing a bank. The discussion that follows focuses on the basics of being a director. The legendary Green Bay Packers football coach, Vince Lombardi, recognized the importance of teaching basics to his players. Even after winning championships and being surrounded by future Hall-of-Fame players, Lombardi had a tradition of beginning every preseason training camp the same way. He stood before his players, football in hand, and said, "Gentlemen, this is a football." He assumed his players were a blank slate at the beginning of each season. With that in mind, we begin with the basic discussion, "Ladies and gentlemen, this is a bank."

8. Off the planet - This excellent graphic from the Wall St Journal shows the US budget deficit is forecast to be worth almost 16% of GDP in 2010. Hard to believe it would actually get that high and that the Chinese are happy about this. I'm continually stunned about the apparent relaxedness of Treasury investors with the implications of this spend-up. Treasury bill rates are near record lows on the assumption about deflation. When are they going to start pricing in default risk? Kenneth Rogoff has the right take on this in this WSJ piece.

Even with tax increases and spending cuts, Mr. Obama's budget foresees a record budget deficit of $1.6 trillion this fiscal year sliding down to $706 billion in red ink by 2014, only to begin rising again as the baby-boom generation drives up the costs of Medicare and Social Security. By 2020, the federal debt will have risen to $18.6 trillion, or 77% of GDP, from $7.5 trillion, or 53% of GDP, last year. Kenneth Rogoff, a Harvard University economist who has studied other countries' experiences, said debt levels already forecast would push the U.S. toward a tipping point where interest rates could soar, the value of the dollar could plunge and the economy could face another crisis. "We will hit a point where it comes on us very quickly, and you don't want to edge up to that point," Mr. Rogoff said. "Going beyond 80%, you're taking a real chance."

9. Lovely for some - Westpac Group CEO Gail Kelly has just bought this house above in Sydney for about A$9 million, the Sydney Morning Herald reported. Kelly signed off on Westpac's move in December to increase its variable mortgage rate by more than the increase in the Australian official cash rate and Westpac was responsible for a less than successful "Banana smoothie" video explaining this to customers. 10. Carry trade crackdown - The Daily Telegraph reports the head regulator for Britain's banking system has signaled a crackdown on the curious business of the carry trade, which is where speculators borrow cheaply in one currency to invest in another higher yielding currency. This is of course relevant to New Zealand because our currency has surged in the past when carry traders have jumped onto our higher interest rates. If a crackdown was successful (and that's a big if in a world where bankers are paid multiples of that paid to regulators), this would deprive our banks here of cheap funding they've used in the past to offer cheap fixed rate mortgages. HT John via email.

Speaking at the World Economic Forum annual meeting in Davos, Lord Turner said that while he recognised the need for liquidity in financial markets, "much proprietary trading activity serves no useful social purpose". He cited foreign exchange carry trades as a prime example of this kind of activity and said that he was not convinced that it created liquidity that was in any way helpful to bank customers or the wider economy. A key figure in the international reform agenda, Lord Turner suggested that supervisors may need to take account of the social usefulness of trading activities in setting new capital adequacy and liquidity rules.

Totally irrelevant video - Colbert's highlights of the week.