Wednesday's Top 10 with NZ Mint:Hong Kong-style LVR limits not so bad; Portugal's population being gutted; UK's 'funding for lending on steroids'; China's love hunters; Dilbert

Here's my Top 10 links from around the Internet at 10 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 #3 on the what's happening to Portugal's population structure as a symptom of the wider problems in Europe. Mass youth unemployment and an ageing population are an ugly mix that mean there are a few Portugese cleaners working in Queenstown hotels. #6 is also worth a read on Europe's problems.

1. 'Don't worry so much about LVRs' - Go2Guys mortgage broker Campbell Hastie has written a useful opinion piece over at TVNZ about the potential impact of Loan to Value Ratio (LVR) limits on first home buyers.

This is topical ahead of the Reserve Bank's Monetary Policy Statement on Thursday morning, where it is expected to give an update on its plans for 'macro-prudential' tools to help it cool down the housing market without hitting the rest of the economy.

Hastie refers to the practice in Hong Kong, where there is a 70% limit on regular home mortgage lending. 

It turns out first home buyers can borrow more than 70% and up to 90% if they are financially sound and take out Mortgage Insurance Protection (MIP).

Ya gotta love all these TLAs (Three Letter Acronyms).

The mainstream banks can only lend out 70% of a property's value but so long as borrowers meet certain eligibility criteria (i.e. they're in top financial shape) the banks can stretch out to 90% Loan to Value Ratio (LVR). The 'stretch' is allowed because the risk associated with it is taken on by a mortgage insurance company not the bank.

All of which sounds reasonable enough. Naturally the MIP comes at a cost in the form of a one-off fee or ongoing margin to cover the lender against any loss and to reflect the additional risk being taken on when the amount of equity/deposit is small. The upshot of the way they do it in Hong Kong is that the financial system ends up with a larger degree of stability built in because the banks have limited their direct exposure to 70% of property values.

2. America's fiscal drag - Marc Chandler at Economonitor points out US unemployment would be much lower without all the government spending cuts, which are worsening the longer the 'sequester' goes on.

A key take away from this is that one of the ways in which the current recovery has distinguished itself from other recoveries is that the government sector is an important drag rather than support for the economy. The partisanship in Washington and the large deficits and debt have obscured for many an important underlying development: the discretionary part of the government is shrinking.

3. Portugese migration - Been served by a young European in a bar or hotel in New Zealand lately?

I've noticed an awful lot of French, Irish, Italian and Portugese staff in New Zealand of late.

Here's Ed Hugh from Economonitor with a look at the incredibly high emigration rate and very low birth rate in Portugal. The end result is a deeply worrying population structure detailed in the chart below.

High unemployment levels and the lack of job opportunities are leading an ever increasing number of young Portuguese to emigrate. The numbers are large, possibly a million over the last decade, victims of the country’s ridiculously low growth rate – under 1% a year. And the departures are accelerating. Jose Cesario, secretary of state for emigrant communities, estimated recently that up to 240,000 people may have left since the start of 2011.

4. The old solutions won't work - Hugh goes on to point out economists are ignoring these demographic issues in Europe, and it's making fools of them. Portugal is just one example.

The depth of ignorance which exists on the challenges the country faces was revealed last year when Prime Minister Pedro Passos Coelho actually said that the best solution to youth unemployment problem was for young people to emigrate. We are increasingly handling the new and complex problems presented by the 21st century with the aid of simplistic formulas derived from 20thcentury textbook economics.

It’s time for someone somewhere to wake up to the fact that the old models don’t work, because there are growing number of key factors they simply don’t capture. The poor performance of economists using these models is increasingly getting the profession a bad name among the public at large. Mr Draghi’s outright monetary transactions programme may well be doing a marvelous job of addressing the issue of financial capital flight but it offers few solutions to the human capital one.

In the absence of policies which acknowledge these issues exist and then address them none of the sustainability analyses – debt, financial sector, whatever – are worth the paper they have been written on.

5. 'Funding for lending on steroids' - The sense of desperation now gripping Britain's policy makers is palpable. Britain is headed into a triple dip recession with relatively high inflation and unemployment. The Bank of England is printing money and it's just lost its AAA credit rating.

So now the government wants to deliver a 'steroid' injection to its 'funding for lending' scheme so that the government-owned banks in particular will lend more to people in business. At the moment banks are much keener to lend on housing.... Sound familiar?

Yet again the basic problem of the need to deleverage is not being addressed. Britain's approach is to try to juice the economy with more lending and let inflation do the dirty work of making the debt go away for future generations by holding interest rates down. This is the 'financial repression' strategy.

Here's The FT on the latest plans for leveraged financial drug abuse.

Nick Clegg, the deputy prime minister, is determined that the programme be pumped up and put “on steroids” following a slump in lending in the final three months of the last year.

“We are pushing for FLS to be extended and there is general agreement between both sides of the coalition,” said a senior Lib Dem yesterday. “Can we extend it, can we increase it, can we direct it to SMEs? These are the things on the table.”

6. "We saved the banks but are running the risk of losing a generation." - So said the President of Europe's Parliament Martin Schulz in this Reuters piece. He has nailed Europe's problem, and you could argue, the problem across the developed world.

Since the region's debt crisis erupted in Greece in late 2009, the European Union has created complex rescue mechanisms to prop up distressed countries and their shaky banking sectors, setting aside a total of 700 billion euros.

But little has been done to tackle the devastating social impact of the crisis, with more than 26 million people unemployed across the EU, including one in every two young people in Greece, Spain and parts of Italy and Portugal. That crippling level of unemployment has led to protests and outbreaks of violence across southern Europe, raising the threat of full-scale social breakdown, including rising crime and anti-immigrant attacks that can further rattle unstable governments.

"We saved the banks but are running the risk of losing a generation," said Martin Schulz, a German socialist who has led the European Parliament, the EU's only directly elected institution, since January last year. "One of the biggest threats to the European Union is that people entirely lose their confidence in the capacity of the EU to solve their problems. And if the younger generation is losing trust, then in my eyes the European Union is in real danger," he told Reuters in an interview.

7. Japan's seabed 'ice gas' breakthrough - Ambrose Evans Pritchard is very excited at The Telegraph about Japan's ability to extract methane from 'sea ice' thousands of metres below the sea surface. I've got a hunch it could be expensive and environmentally dangerous. But worth a look and a debate among our peak oil vs non-peak oil brigade of commenters...

Japan has extracted natural "ice" gas from methane hydrates beneath the sea off its coasts in a technological coup, opening up a super-resource that could meet the country's gas needs for the next century and radically change the world's energy outlook.

8. 'This is a good place to hunt' - The New York Times has a useful piece here on the mini-industry inside China finding beautiful wives for rich young men. This is the sort of thing that happens when you have a wildly unbalanced population structure and wealth structure.

“This is a good place to hunt,” she told me. “I always have good luck here.”

For Ms. Yang, Joy City is not so much a consumer mecca as an urban Serengeti that she prowls for potential wives for some of China’s richest bachelors. Ms. Yang, 28, is one of China’s premier love hunters, a new breed of matchmaker that has proliferated in the country’s economic boom. The company she works for, Diamond Love and Marriage, caters to China’s nouveaux riches: men, and occasionally women, willing to pay tens and even hundreds of thousands of dollars to outsource the search for their ideal spouse.

In Joy City, Ms. Yang gave instructions to her eight-scout team, one of six squads the company was deploying in three cities for one Shanghai millionaire. This client had provided a list of requirements for his future wife, including her age (22 to 26), skin color (“white as porcelain”) and sexual history (yes, a virgin).

9. 'Does he own an apartment in Beijing?' - And here's the other side of the 'love-hunter' coin in China, courtesy of the same New York Times article. 

Three miles away, in a Beijing park near the Temple of Heaven, a woman named Yu Jia jostled for space under a grove of elms. A widowed 67-year-old pensioner, she was clearing a spot on the ground for a sign she had scrawled for her son. “Seeking Marriage,” read the wrinkled sheet of paper, which Ms. Yu held in place with a few fragments of brick and stone. “Male. Single. Born 1972. Height 172 cm. High school education. Job in Beijing.”

Ms. Yu is another kind of love hunter: a parent seeking a spouse for an adult child in the so-called marriage markets that have popped up in parks across the city. Long rows of graying men and women sat in front of signs listing their children’s qualifications. Hundreds of others trudged by, stopping occasionally to make an inquiry.

Ms. Yu’s crude sign had no flourishes: no photograph, no blood type, no zodiac sign, no line about income or assets. Unlike the millionaire’s wish list, the sign didn’t even specify what sort of wife her son wanted. “We don’t have much choice,” she explained. “At this point, we can’t rule anybody out.”

In the four years she has been seeking a wife for her son, Zhao Yong, there have been only a handful of prospects. Even so, when a woman in a green plastic visor paused to scan her sign that day, Ms. Yu put on a bright smile and told of her son’s fine character and good looks. The woman asked: “Does he own an apartment in Beijing?” Ms. Yu’s smile wilted, and the woman moved on.

10. Totally Jon Stewart on the race to become Pope. They're 'Popefuls'...