Tuesday's Top 10 with NZ Mint: Italy's 'dead man talking' and why it should leave the euro and default on its 'crushing' debt; China's soil pollution state secret; Dilbert

Here's my Top 10 links from around the Internet at 11 am  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 today is #5 on the debt bomb that has gone off inside China and why it's a problem for China's future growth rate (and therefore for us and Australia). 

1. The hilarious Beppe Grillo - I have never understood any of Beppe Grillo's jokes because I don't understand Italian.

But I still think he's hilarious.

He's refusing to join any government and has described the centre-left leader Pier Luigi Bersani as a 'dead man talking'.

He is openly talking about the need for a referendum on Italy's membership of the euro.

He's also rightly pointing out that Italy can't repay its debts and needs to restructure (ie default) on its debts.

The problem is that would wipe out Italy's banking system and probably destroy the German and French banking systems to boot.

Very funny guy.

Here he is being interviewed by a German magazine, as reported by The Telegraph:

 “If conditions do not change” Italy “will want” to leave the euro and return to its former national currency.

The 64-year-old comic-turned-political activist also said Italy needs to renegotiate its €2 trillion debt.

At 127 per cent of gross domestic product (GDP), it is the highest in the euro zone after Greece.

“Right now we are being crushed, not by the euro, but by our debt. When the interest payments reach €100 billion a year, we’re dead. There’s no alternative,” he told Focus, a weekly news magazine.

 2. A quick history lesson - Blogger Lord Keynes points out here that New Zealand successfully printed money and spent money on housing infrastructure from 1936-38 to dig its economy out of the depression. 

We've been here before...

Increases in expenditure began in 1934 as the recovery ensued. The government deficits were covered by bond sales but also by direct central bank money creation (or “central bank credit”):

“The extensive use of central bank credit ... [sc. in New Zealand was] extremely unorthodox; and the amount involved was, for such a small country as New Zealand, substantial.” (Plumptre 1940: 289).

In fact, the central bank money creation bears obvious similarities to policies advocated by Modern Monetary Theory, and the state credit was used in public works spending and state housing.2

After New Zealand adopted strong fiscal expansion, employment fell very rapidly after the stimulus was introduced in 1936: the number of those on relief programs fell from 38,000 in 1936 to only 8,000 by December 1937 (The New Zealand Official Year-Book, Volume 94, Govt. Printer, 1990). By the estimate of K. Rankin, real GNP soared by about 18% in 1936, 5.4% in 1937, and 7% in 1938 (Rankin 1992: 61), driving real GDP back to its trend growth path by 1937

3. Just what China needs - A massive high yield bond market to keep funding its urbanisation programme.... That's the scoop from Reuters on what the new leadership are planning. 

The key detail is the acceleration of the urbanisation programme. If true and achieved without a credit market explosion then it's good news for Australia and New Zealand.

The Party aims to bring 400 million people to cities over the next decade as the new leadership of president-in-waiting Xi Jinping and premier-designate Li Keqiang seek to turn China into a wealthy world power with economic growth generated by an affluent consumer class.

The urban development would be funded by a major expansion of bond markets, sources with leadership ties, and a senior executive at one of China's "Big Four" state banks, who was formerly at the central bank, told Reuters.

The need for bond market reform has grown more urgent since December, when Li accelerated a commitment in China's 12th five-year plan to spend 40 trillion yuan on Urbanization by 2030. That money will now be spent over the next decade.

"(Li) Keqiang changed the target date during the Central Economic Work Conference last December," said a second source with leadership ties.

Currently, China lacks a properly functioning municipal bond market and is only just developing high-yield bonds, both of which would be needed to attract the investment capital sought.

4. Pollution data a 'state secret' - It's instructive to watch how news gets out in China these days and how things are changing. 

WSJ's ChinaRealTime blog reports on how state-owned media have been the most aggressive in calling for state environmental authorities to release soil pollution data categorised as a 'state secret'.

At least three state-run newspapers have slammed China’s environmental authorities for arguing that soil pollution data is a “state secret” and thus not fit for public consumption, marking the second time in less than two months that state media have come out swinging against the government over environmental issues.

“State secrets is the magic phrase for rejecting disclosure of information. Is it because it involves secrets that it can’t be revealed, or is it simply because you’re afraid of triggering dissatisfaction?” the Communist Party’s flagship newspaper People’s Daily said in on its official account on the Sina Weibo microblogging platform this week. “Covering this up only makes people think: We’re being lied to.”

5. Chinese regions cut growth targets - Bloomberg reports almost half of China's provinces have cut their economic growth targets after China's new central government emphasised the need to improve the quality, rather than the quantity, of growth.

Fourteen provinces have set lower targets for gross domestic product expansion this year than in 2012 and the other 17 left their goals unchanged, according to Nomura Holdings Inc. The weighted average target has dropped to 9.9 percent from 10.3 percent, Citigroup Inc. calculates.

Scaling back regional politicians’ growth-at-any-cost attitudes may limit China’s rebound from its weakest expansion in 13 years. At the same time, it may mitigate concerns that rising local-government defaults will threaten the financial system and pollution will worsen as leaders complete a once-a- decade power handover next month.

“In the future, the central government may look at more indicators, including pollution and debt, in assessing local officials,” said Zhang Zhiwei, chief China economist at Nomura in Hong Kong and a former researcher for the International Monetary Fund. “You can’t continue the traditional way of accumulating heavy debts to push up GDP in your term and then leave the trouble to your successor.”

6. The rise of the fringe - Just as in the early 1930s, Europe is beginning to see the rise in opinion polls of the radical right and radical left parties as governments across the continents pursue intense programmes of austerity to keep their German creditors happy.

Here's The Guardian with a wrap up of the rise of such radicals.

Separatism, in Antwerp or Barcelona, is one grassroots response to the financial and economic crisis that now appears to be raising much more fundamental questions about political legitimacy across Europe.

But the backlash against tight fiscal one-shape-fits-all orthodoxy, spearheaded by Germany and orchestrated by Brussels, takes various forms across Europe. In Greece it is the hard-left Syriza movement that has prospered, along with the neo-fascistGolden Dawn, which has added violence to the list of instruments deployed in the backlash of the new politics.

To the north in Denmark, the reaction has been the more common one of Ukip-style protest politics, with opinion polls this week showing that the nationalist, anti-immigrant, rightwing Danish People's party has overtaken the governing social democrats in support.

The suddenness with which Grillo has emerged and taken one in four of Italian votes may have shocked the traditional governing elite across the EU, but it shows little sign of knowing how to respond or adjusting to the message being sent by voters who have sent incumbents tumbling one after the other from Greece to Finland over the past three years.

7. Predatory behaviour - The Economist's Schumpeter writes a thoughtful column here on the dangers of modern, publicly listed companies. 

Why have so many prominent companies gone up in flames? In a new book, “Firm Commitment”, Colin Mayer, of Oxford University’s Saïd Business School, takes a familiar argument—that shareholders have too much power—and gives it new life. The idea that the main function of companies is to boost shareholder value rests on a misunderstanding of the nature of the firm, he says. Companies are not owned by shareholders in the way that ordinary goods are owned. They are artificial persons with a distinct legal identity. Companies are not just devices for lowering transaction costs or bundling contracts together. They are devices for getting groups of people—workers and managers as well as investors—to commit themselves to long-term goals.

The doctrine of shareholder primacy is particularly dangerous when combined with dispersed ownership, he believes. Dispersed ownership (which often occurs when founding families sell shares to finance growth) leads to a separation between ownership and control. Managers exploit this separation to feather their own nests. Owners respond by relying on two devices—shareholder activism or the market for corporate control.

8. Break up the 'Too big to fail and jail' banks - Barry Ritholz does an excellent job here of listing all the very serious people who have called for the Too Big To Fail and Jail banks to be broken up.

Yet it hasn't happened and doesn't look like it will. Why?

9. A great man dies - Stephane Hessel was a French resistance fighter who gave an impassioned speech (and later wrote a booklet) called 'Indignez Vous' in 2009 that captured the mood of the moment. 

Here's the FT's excellent obituary. 

Its genesis was his speech in 2009 at the Glières Plateau in the French Alps where, 55 years earlier, Maquis guerrillas had fought the Germans. Claiming to speak for the wartime resistance, Hessel urged people to shed indifference and fight the “tyranny of the financial markets”. In 2010 the speech became what he called his “little book”. A tiny Montpellier publisher printed 8,000 copies. “I thought it would sell 8,000 and would interest old French resistance fighters,” he marvelled.

It has sold more than 4m copies, about half outside France, fuelling movements such as Occupy Wall Street and Spain’s Indignados. Protesters waved it aloft. In Syria, an academic circulated a bootlegged translation. The book, as Hessel said, “hit a moment”. People hurt by the financial crisis were angry at banks and governments yet felt helpless to effect change. He told them they could. After all, his generation had defeated Adolf Hitler’s might.

10. Totally Jon Stewart on the Pablo Escobar of maple syrup.

I had no idea.