New Zealand joins its larger and more illustrious economies, the U.S. and the U.K., on the slippery slope with the release today of pretty poor employment numbers. 29,000 jobs lost is no small number for a small economy and with retail numbers looking very soft as well, the Reserve Bank will soon be reaching for the “cut” lever on its interest rate management dashboard.

Regardless of the credit crunch, employment really is the key to how the economy will fare. As long as people are employed then somehow they can get by and service their debts. Well mostly. But now this will see a deeper problem emerge and that is one where people simply cannot service mortgages or debt in any way.

This will reverberate throughout the whole economy. Added to this is a report out today showing house sales down 40% in the last quarter and 53% lower last month from the previous year.

Ouch.

The Olympic Torch continues to trip and stumble its way to Beijing. That there would be protests along the way was never in doubt but what has been a surprise is the mobilization of Chinese citizens along the way. In Australia there were clashes between Chinese supporters and pro-Tibet protesters. The same thing happened in Japan yesterday.

This is a new phenomenon and one that should be taken note of carefully. There are a lot Chinese living overseas, many of whom were glad to get way in the bad old days of communism and repression. Now things have changed. China is open for business and the most dynamic economy in the world. Suddenly its cool to be Chinese (well sort of) but just as India was “in” a few years ago, China is now all the rage. With this has come a new sense of purpose and national identity both in China and overseas. It certainly gives rise to a lot of comment and opinion.

Where this ends up is anyone’s guess but a resurgent China will be a shock for many people used to browbeating and looking down on China as simply a repressive regime with super cheap labour.

The Chinese vice commerce minister said on Friday “Chinese enterprise should transform themselves from purely from being exporters and importers to being multinational companies through overseas acquisition and production”. That’s a big statement. We’ve already seen this approach with  stakes being taken in US banks and industries but these guys are not messing around. With $1.6trln in reserves they can pretty much buy anything.

They are smart. Why buy US treasuries when you can buy US companies? They can spread influence using economic rather than military means and of course secure a constant supply of the resources required.

It’s a fascinating developmental process to watch and the ramifications are bewildering to imagine.

We certainly do live in interesting times.

Following on from their generous bail out of Northern Rock, the UK Government, otherwise know as the taxpayer, has opened its arms to any old piece of paper banks have sitting around on their balance sheet.

Or to be more accurate, the Bank of England will accept mortgage backed securities in return for government bonds. Nice trade if you cant get it. The amounts mentioned are 50 to 200bln pounds (where the hell is my pound key?) but basically it’s a free for all.

Now we can expect to see banks reaching for the refinancing button in order to take advantage of this. RBS has already put its hand up for 10 to 12bln of fresh capital plus a 6bln write down.

Ok so its just more mess. The markets may rally on this hoping it can help clear the looming crisis in the mortgage market but the numbers are really starting to mount up and this is just very bad news indeed.

The key issue here is the capital adequacy of the banking system. It’s proven to be the achilles heel which is why the authorities have had no option but to underwrite the system.

Given this exposure of the fragility of the banking system it is time to ask questions about capital adequacy and the way banks are regulated and allowed to operate.

Merrills realeased another $9bln from trading losses and decided to fire 4000 people who probably never made a trade in their life. That brings the total for 3 quarters to $29bln, a not insignificant sum.

Citigroup was in there as well with another $5bln loss for the quarter and another 9000 jobs to go in addition to the 13000 already on the streets.  Naturally the stock rallied…phew only $5bln!

It’s interesting to see how far this continues because this isn’t a good show at all. The numbers just keep getting bigger and bigger. Citigroup still has $60bln worth of exposure to sub-prime and other loans. What worries me is the 7.7% Tier 1 capital adequacy ratio.

That is what this is all about. Leverage to the hilt and be damned. Banks have become nothing more than licenced fronts for gambling.  Fair enough but that isn’t why people deposit their money in them.

Safe as houses? Well that depends what the house is worth.

The P2P phenomenon which started with online communities and has now spread to lending money, couch surfing and music swapping has another possible application: currency exchange.

The reason I mention this is because of the highway robbery some currency exchange outlets are carrying out. To give you an example:

Last week I took a trip to Sydney. I bought some A$ at Christchurch airport through the BNZ. Their rates are always very good usually a spread of around 2-2.5%. Now that’s still pretty big but remember these rates are change maybe once a day max and the markets can be moving as much as that. I bought some US$ at 0.7929 knowing the market was actually trading at 0.7945 so i was getting an almost at market rate.

But when I arrived in Sydney I checked out the rates available at Travelex. These guys are offering outrageous prices (unfortunately they are at Auckland airport also).

Their spreads on A$ to NZ$, US$ and GBP were 20%, 15.6% and 22.4%.

Who are these guys kidding. In market vernacular I could drive a bus through that spread (more like a fleet of them).

So what to do? Well we have P2P lending now established in many commonwealth countries. So how about extending that to provide a currency service within the new distributed network.

It’s food for thought.

I like this piece from Micheal Coote on the NZ Securities Commission. He contrasts the approach of US authorities in throwing the book at white collar fraudsters with the rather ame approach of Seccom here in simply posting binding undertakings on its website from offending parties.

It reminds me that nearly 4 years agao i tried to interest Jane Diplock and the Commission in looking at finance companies. There was no reply. Sometimes i wonder what they get paid for. Trawling through their website I came across this speech by Jane Diplock to the International Investment Funds Assocation late in 2007. She is also the Chairman of the International Organisation of Securities Commissions.

It was a mind numbingly boring speech about global regulation of capital markets. Read it if you can’t sleep tonight. What surprises me the most is the lack of concern about the state of global markets, given the speech was dated 1st November 2007. That just about sums it up for me.

What have they been doing? Not much from what I can see. Meanwhile 17 NZ finance companies have gone under and the global capital markets are in dissarray.

But wait maybe they are onto something going by her concluding remarks

“We are at the cusp of a new global adventure into new realms of mutual recognition and consistent standards around the world. We live in exciting times!”

Strewth!