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A hard look at the idea of the "Great Moderation" a peiod of stable prosperity that America has enjoyed for 20 or so years with low inflation, stable unemployment and smaller bumps along the road even in recessions such as the one in 1990 and in 2000 which had shorter durations with good rebound. The IMF report on the world economy for September looks at this period of stability and sees a continuation. This report takes a look at the current crises in housing and credit markets and takes a more cautious view wondering if things may be at a turning point where such stable growth cannot be taken as a given. In general the world economy has become more flexible and structural shifts to globalization and the shifts in manufacturing to other parts of the world such as emerging countries have made for a more resilient world economy compared to the economy that faced the oil shocks of the seventies. The three specific causes to which this stable period is attributed are the better handling of monetary policy, the better inventory management with Just in Time and manufacture to order, inventories literally being the shipments that are carried by Fedex or UPS on a particular day, and credit markets securitization of debt packaging it into marketable securities creating a large credit pool so thay companies could have better access to credit. Securtization has suffered because some of the basic rules were broken such as how securities are rated and not because of the basic concept. Have the markets and investors and households taken on more risk in their asset portfolios because of the belief that this period of 'Great Moderation' would simply continue. Its these kinds of behaviour that get tripped up until things get cleared up and return to normal. Is this simply a phase like the prior downturns preceding it that should see a similiar rebound or is it something different. One thing that is noted is that the period of relative prosperity has ocurred as in many countries in Europe and Asia. And the housing markets in many countries in Europe and Asia have also seen rising prices similar to that of the US. Can this turn into a worldwide recessionary situation? Comment made later on April 12, 2008 after the Bear Stearns crisis in March 2008 and the Fed meeting summary describing the downturn as expected to " be protracted and severe", and the emergency measures by the Fed itself made to prevent a possible global financial crisis. In hindsight the 3 reasons for the Great Moderation can be evaluated in this way. The first was the only real one to which researchers attribute about 50% of the Great Moderation, which is the revolution that Just In Time inventories have accomplished for smoothing drops in demand. The second financial innovation proved to be illusory just as mentioned here because it was gamed because the financial houses and other firms were able to get around regulation or the regulations were inadequate and the innovation fell victim to unrestrained greed in the manner mortgage securitization was done. The third wise better monetary policy as mentioned here did not get much credit from researchers and this turns out to be true. Keeping interests rate low was possible because of the disinflationary aspect of globalization specifically manufacturing in China which ended in 2007. Further the success of the US economy made it possible for the US dollar to remain strong and the USA to continue to attract capital for much of this period even while interest rates were low. But its the export of disinflation from China, and no pressures of inflation from globalization through commodities demand for much of this period, that kept inflation low and made it possible for the Fed to keep interest rates low without creating inflationary pressures. Of the three financial innovation and monetary policy may have in them in fact unlike the first Just in Time and information technology, may have in them the seeds of trouble as well as gain if not carefully managed, like fire a good servant but bad master, and this is really what happened in what turns out to be a very human world, greed subverted financial innovation without the necessary appropriate regulation to go with it and the Fed's libertarian instincts and complacency or lack of energetic oversight under a man past eighty years made it lose sight of its need to adjust interest rates to cool off excesses in the market and send appropriate signals to the financial and housing markets. The Economist was slightly ahead of the curve when it makes the observation here that this is likely to be a global housing crisis and a global credit crisis with all the implications of this for global economic growth. ...

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Chile, Mexico and the U.S. rank high in the diabetes rate for top soda consuming countries. In the U.S. the diabetes rate is at 7.7% of the population, in Chile 9.6% and Mexico 9%. Soda consumption per capita was at 165 litres in the U.S., 146 litres in Mexico and 134 litres in Chile, and 145 litres in Argentina where the diabetes rate is at 3.9%, for 2012. A new public service ad in Mexico City subway stations says it all, showing an ad with a soda bottle and the words- "Would you take 12 teaspoonfuls of sugar? Soda is sweet, diabetes isn't." The new Pacto de Mexico agreed to by all major political parties includes the soaring diabetes rate in Mexico as a problem to be tackled, including lunches at public schools and the consumption of coke and sodas by children. A particular acute problem in Mexico is the lack of clean drinking water in many areas and the dependence on coke and sodas for liquids. But bottled water could be used in its place if available at lower prices. One proposal is for a soda tax which could generate $2 billion and be used for setting up clean drinking water fountains in schools and other places. Elected officals in Mexico are firm about the need for action, as Mexico recently became the first country over 100 million inhabitants with the highest obesity rates at 7 adults out of 10 over the age of 20 obese or overweight, and the consequently high diabetes rate. Diabetes is the No. 2 killer in Mexico, and a serious health danger. Coca Cola gets its second highest revenues from Mexico after Europe, and the situation has evolved after years of heavy coke advertising to the point where Coca Cola is taken at every meal by some Mexican families, and is a sign of prestige. The company's response is to fight the public service ads with ads showing people burning off 149 calories by walking. The country now faces a long and uphill fight. Russia is one of the countries which is also conducting a similiar fight against soda drinks. The Bloomberg Philanthropy is financing efforts against soda drinks in Mexico, as part of its campaign against smoking and sodas as health hazards, and this maybe Bloomberg's bigger contribution to society than his service to New York City. Developing middle income countries such as Mexico, Chile, India, China, Brazil, are the hardest hit by soaring diabetes. And the costs to their health systems in 10-20 years from uncontrolled obesity and diabetes will be enormous. The U.S. is a developed country with similiar high rates of obesity and diabetes, with soaring medical costs, and serious problems that strangely have not received the public awareness and efforts that one should expect. ...

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The Economist points out that China's total debt of government, corporate and households has grown by about 100% of GDP since 2008. The 2009 crisis led to rapid increase in debt. It is now about 250% of GDP, according to the Economist. Slower growth of below 7% risks reducing China's ability to service this debt. About half of this debt is owed by state owned companies and property developers. China can use its sovereign reserves to continue supporting bank and state owned companies. Investor's are pricing bank shares to reflect about 10% of this debt as bad debt even though government estimates are much lower. The reserves provided China time to fix the banking system since 2008, yet the debt keeps growing and China has failed to take strong action in the last 6 years. Complacency is a problem, and the incentives for local governments to continue prior practices that increase debt continue. As Krugman and other experts have pointed out at some point the rules of finance will apply to China as they have for other countries that faced a debt crisis- Japan in the late 1980's, South Korea and other Aisan countries in 1997, and the U.S. in 2008. Even without a crisis through deft managemen and use of reserves China risks zombifying the economy as old loans are backed up by new loans, with the further risk of misallocation of capital or poor use of capital. This lowers productivity of capital and hurts development. With poor statistics such as the figure of 1% of debt being bad debt cited here, the problems of complacency can be magnified, as there is less reason for a strong response....

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India's crude oil imports were sharply higher in 2011 and 2012. India's imports of crude oil for the first 11 months of the 2012 fiscal year ending March 31, show a 40% increase over the same period in 2011 fiscal year. India's import bill was $128 billion for crude oil imports for the 11 months of fiscal year 2012. Indian subsidies to lower prices for fuel are $30 billion annually. The higher prices for crude create inflationary presssures in India and restrict economic growth.

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A shakeout for manufacturers in the solar industry is developing in 2011-2012, as prices of solar components drop sharply. There is slowing growth for solar products in 2012. Seven solar power manufacturers have filed for bankruptcy or insolvency in 2011, including two German companies Solar Millenium and Solon SE, and Solyndra LLC of the U.S. Debt exceeds market capitalization for the 10 largest publicly traded solar companies. A major reason is the subsidies offered by governments in Europe, the U.S. and China, which resulted in a glut in manufacturing capacity and falling prices. Chinese banks encouraged by the Chinese government have given $43 billion in credit facilities to Chinese renewable energy companies, according to Bloomberg Energy Finance. Prices of solar panels at $1.60 per megawatt in 2010, dropped to 90 cents per megawatt in 2011. Another problem is slowing demand. In Europe banks are reducing funding. Installations doubled for solar energy in Germany in 2010, and dropped 29% in 2011, according to Jefferies. Germany is the largest market for solar energy in the world....

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Amol Sharma and Paul Beckett of the WSJ interview Finance Minister Chidambaram about the Indian government's decisions to open up the insurance, retail and airline sectors to foreign investment, and bring the deficit down to close to 5.3% in 2013. Faced with slowing growth and the risk of credit ratings agencies lowering India's credit ratings the government of prime minister Manmohan Singh has decided to take some decisive steps, including a shift in coalition partners to maintain parliamentary support for these steps. When asked about what influenced the government's resolve to take these decisions, Chidambaram says credit ratings was one factor, another was the difficulty Indian companies were having raising capital inside the Indian market and overseas. In addition he says growth could not be sustained at earlier levels without new capital, and new foreign investment was needed for sustained growth. The Kelkar committee report provided a sense of urgency to the government by providing an independent view and showing the worst case scenario if the government maintained the status quo. Chidambaram says subsidies will now be transferred in the form of cash directly to beneficiaries and reduce costs by cutting leakage in the system.The government will use the list of LPG cooking gas households to transfer the subsidy for 6 gas cylinders directly to beneficiary accounts. The plan is to do the same for the Rural Employment Guarantee Program and subsidized foodgrains to cut the leakage that stems from duplication and falsification. The Indian government's ongoing program to use information technology to have computerized records of the the entire population and linking to the financial system, incuding a large rural population, now makes it possible to take these steps. On the Kelkar committee's recommendation to increase prices of basic commodities cooking gas, kerosene and food to reduce government subsidies, Chidambaram says this is ambitious and the government has to consider the political context even though it agrees that this has to be done over time....

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International Energy Agency estimates show the U.S. surpassing Saudi Arabia as the world's largest oil producer by 2020 because of the boom in shale oil production. The estimates are for 11.1 million barrels a day from the U.S. in 2020.

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Problems facing India as it searches for a way to modernize the country, build infrastructure, and create strong jobs growth. Glaring weaknesses are evident in a number of areas which have not been addressed: a weak public education system, food poverty for people at the lower end worsening with today's 10% food inflation, child malnutrition, weak infrastructure building capabilities, growth in services but not enough in manufacturing to create jobs, a growing black economy, and a general acceptance of illegal behaviour that has increased with the increase in opportunities for corruption and bribes in a growing economy. The political governance is weak. The dependence on smaller regional parties in ruling coalition governments weakens initiative at the federal government level. The general lack of new political leadership, and the failure to develop new leaders in the Congress party because of the six decades long presence of the Nehru family. Some striking facts- the role of the black or underground economy has actually increased over the years. Arun Kumar, chairman of the Center for Economc Studies and Planning at Jawaharlal Nehru University in New Delhi, says his estimates show it was 40% of GDP by 1996, and 50% by 2006. This means more business activity evades direct taxes, and less money is available for investments in education, infrastructure and healthcare. It also indicates a widespread tolerance of illegal activity and corruption. The other striking facts are that the calorie consumption by the bottom of the 50% of the population has been declining since 1987, according to a 2009-10 economic survey by India's Ministry of Finance. The modernization of the country appears not to be following the path taken in East Asia- by Japan, S. Korea and now China- where people moved in large migrations from farms and rural areas to cities and manufacturing jobs, resulting in gradual urbanization. Manufacturing in India is only 16% of GDP in 2009, the same as in 1991, according to the World Bank. Certain regions are doing better than others- Gujarat and the Punjab in the north, Tamilnadu, Karnataka in the south- with large population areas in Uttar Pradesh and Bihar lagging behind badly. ...

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IMF research by Ocampo and Erten shows that when adjusted for inflation since the 1970's, the prices of metals have remained about the same, food prices down 58%, and energy prices up 163%.

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Judith Warner coins the phrase "dysregulation," for the cultural phenomena that may be behind the lack of restraint exercized in everthing that relates to personal lives like obesity, to the lack of regulation in the gulf and financial crisis. Citing Whybrow's book, "American Mania: When More Is Not Enough," she points to a disturbance in the national psyche, something that disturbs some inner clock or mechanism, that disturbs some inner balance that is built into us from the beginnings of man in the universe.

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The International Energy Agency lowers its global oil demand forecasts on Dec. 11, 2014, leading to further drop in the price of oil with oil futures in electronic trading for WTI at $58.89 on New York Mercantile Exchange, and Brent crude at $62.83 on ICE in London, for January 2015. The price of WTI U.S. oil dropped to $59.95 on Dec. 11, 2014.

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U.S. President Obama's 2013 State of the Union address focussed on the problems facing the U.S. middle class, calling it "our generation's task" to tackle this problem. Economic changes have changed the patterns of economic growth and jobs, growth, income growth, that prevailed from the end of the Second World War to about 1989. But he offered few solutions beyond increasing the minimum wage to $9.00 from $7.25 to reduce poverty.

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Lower amounts for financial aid available offset the lower rise in tution costs to leave students just as worse off as before with large amount of student debt in 2013-2014.

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The Indian public from retired businessmen, farmers, students, and the press are coming out in support of anti-corruption leader Anna Hazare's call for effective legislation to control corruption of public officials in India. This comes after a number of corruption scandals and lack of action from the Congress government. The government's bill in parliament - introduced after pressure from public opinion- sets up an ombudsman or Lokpal agency, which would exclude from its jurisdiction the very public officials over whom it was meant to exercize oversight. Under the government's bill the prime minister, the public officials in the bureaucracy and the judiciary would be excluded. This has set up a confrontation with an increasingly exasperated public, with Hazare's protest fast in central New Delhi as the catalyst for protest across the country. The Prime Minister Manmohan Singh told parliament that he sees it as an issue of parliamentary sovereignty, as Hazare's protest is for a version of the bill that he has drafted to be adopted. But the public's sense is that Hazare is only responding with his own draft of the bill because of the government's effort to make only a token effort by not giving the anti-corruption body the powers it needs to function effectively. The response has brought thousands of demonstrators from around the country to Tihar jail where Hazare is being held by the government after his arrest. The situation is reminiscent of the protests against the British imperial government by Mohandas Gandhi, and in this sense has serious implicatons for how the country is governed. Corruption was prevalent in India during the days of the license Raj in the period 1950-1990 when business needed government permits in the closed economy of the Nehru period, and corruption existed in the bureaucracy in its delivery of public services. Since 1990 as the economy opened up and the growth rate increased corruption at all levels of government has in some ways increased and become embedded in the bureaucracy and government. This hurts the poor and the middle class the most, as corruption acts as a tax on the delivery of public services and infrastructure development, both badly needed in an emerging market country....

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Prof. Peterson of Harvard and Hanushek of the Hoover Institution, authors with Woessmann of the book "Endangering Prosperity: A Global View of the American School," offer some startling reminders about the importance of education to economic growth and incomes in countries. Simply by raising the math standards in the U.S. to the higher standards in Canada would raise GDP by three fourths of one percentage point. One advantage that the U.S. enjoys comes from its good university systems, open markets, rule of law, tax rates, and open immigration policies, which give it about two thirds of a percentage point in higher GDP growth per year. The estimates are from the authors calculations. For the period 1960-2009, a period of rapid growth in Asian countries Korea, Taiwan, Singapore and Hong Kong, higher test scores in math and reading compared to the wrold average as measured by NAEP test and PISA, have led to 2% higher GDP growth. NAEP shows only 32% of U.S. high school students proficient in math compared to 45% in Germany and 49% in Canada and 63% in Singapore. By contrast to Korea and Taiwan, Peru, Argentina, the Philippines and S. Africa have about 2% less in GDP growth because of lower scores compared to the world average....

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Two thirds of Americans are becoming pessimistic about the economy. This is one of the results of a Wall Street Journal/NBC poll. This is up from 53% in January. Voters are losing confidence in the idea that the Democrats can come up with better solutions than the Republicans. Only 24% of those polled have positive feelings for the Republican party, with Democrats doing only slightly better. Democratic pollster, Peter Hart- who along with Republican pollster Bill McInturff conducted the survey- calls it the JetBlue election. This description is from the JetBlue flight attendent who ran from the plane after exiting through an emergency chute. There is a sense of severe discomfort and looking for the exit, he says. With 6 in 10 of those polled expressing a loss of confidence in the policies of the Obama administration to improve the economy, including 83% of independents, and a quarter of Democrats. The situation has deteriorated on the confidence level with the war in Afghanistan as well. 68% of those polled say they are less confident now that the war in Afghanistan can be brought to a successful conclusion....

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Major decline in oil prices in Oct. 2014 as prices drop to $81 per barrel and are forecast to reach $70. U.S. oil production increased by about 56% or 3.1 million barrels a day since 2004. U.S. demand for gas and fuel declined 8% compared to 2004. Initially instability and wars in the Middle East sustained high oil prices in 2012-2013. Yet with growing output from shale and other sources in N. America and slowing economies of Europe and China, the situation reached a point in 2014 where supply exceeds demand. This shift more than offsets any instability in trouble spots. The situation affects the U.S. consumer favorably with an estimate of $1 billion in savings for American consumers with every one cent drop in price at the gas pump, by one estimate from Deutsche Bank analysts. Typical American families gained an extra $50 a month from the decline June to October 2014, according to analysts at Gasbuddy.com. The declines are a boost for the slowing economies of Europe, Japan, China, S, Korea and India. China's imports for 2015 are estimated at 61% of oil consumption, using official estimates. In the current slowdown the lower prices offer relief. India which imports 75% of its energy benefits signficantly, as this helps lower inflation and reduces cost of fuel subsidies for state run companies. Russia is adversely affected by the declines as it depends on oil and gas exports for 50% of the nation's budget. Estimates by AFK Sistema economists show the Russian economy contracting in 2015 with oil at near $90 per barrel (Brent crude is at about $85, and WTI at $81 in early Oct. 2014). Russia's former Finance Minister Alexei Kudrin reflects opinion among Russian executives and politicians, when he told state television that Saudi Arabia may be pushing prices lower to target Russia's oil resource based economy and Mr. Putin, in an effort to broaden the effect of sanctions. (The Saudis have strongly protested the Putin intervention in Syria.) Venezuela has used $120 per barrel and Angola $98 for its budget, leading to a strong hit for the economy. ...

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The anti-corruption bill for creation of a Lokpal agency passed the lower and upper house of the Indian parliament in December 2013. It was stalled for two years after the efforts of political activist Anna Hazare's protest movement for passage of the bill. With national elections approaching in 2014 and the ruling Congress party's image bruised badly in state elections of Dec. 2013, party leaders decided to support the bill. In the elections in the capital Delhi a anti-corruption party, Aaam Aadmi (for the common man), created only recently, won a major part of the seats. In India corruption hurts not only at the national and local level as in China, but affects the daily life of the common man as bribes are required from ordinary people for anything to get done that requires approval from the huge government bureaucracy. In that sense it takes a toll on economic development and affects the quality of services received by the vast majority of people, which is why the party calls itself "common man."...

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The Aam Aadmi anti-corruption party led by Arvind Kejrival won 67 of 70 seats for the Delhi legislative assembly. The BJP won 3 seats. In the natonal parliamentary elections of 2014 the BJP led by Mr. Modi won in Delhi and the rest of the country. The Aadmi Party won the election by gaining the votes of ordinary people who were willing to give Kejrival another chance after an earlier stint at governing that lasted a few months. Kejrival's platform is for giving better access to electricity and water to the people of Delhi, and limiting corruption. In 2011-2012 Kejrival was part of the Anna Hazare anti-corruption movement in India that conducted nationwide protests against corrupt officials in the Congress Party led government. Following this effort which led to the election losses of the Congress Party in parliamentary elections, he setup a political party to contest elections on an anti-corruption platform.

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Corruption in the election and democratic process in India.

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President Obama's program for education includes promoting charter schools, closing failed schools, making teacher pay reflect the quality of education they can provide, and providing financing to support better education and better classrooms. Here he outlined his plans in a major speech on education to an Hispanic group.