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In 2010 Chicago Federal Reserve president Charles Evans sugggested the Fed adopt a "7-3 rule"- the Fed would keep interest rates low and credit flowing till unemployment dropped below 7%, and inflation was below 2.5% and not taking off. He modified this to keeping rates low till unemployment reaches 6.5%, as long as inflation remained below 2.5%, on Nov. 27, 2012. In Fed meetings Evans was supported by vice chairman Janet Yellen, with Minneapolis Fed president Kocherlakota and Boston Fed president Rosengren offering similiar proposals. On Dec. 12, 2012, Fed chairman Bernanke announced a position very close to what Evans has suggested. Charles Evans, worked on the staff of the Chicago Fed for 20 years before being appointed president of the Chicago Fed in 2007, at the beginning of the financial crisis.

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The European Central Bank left all its interest rates unchanged on September 7, 2016. No changes were made to asset purchase program, which will run until March 2017 or beyond as needed. The ECB left interest rates at 0% for its lending operations, and for overnight deposits at 0.4%.  Inflation is a special concern, as inflation was at 0.2% for August. Business activity and investment in the EU and in the U.S. is weak, and Brexit is still a concern.

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Kaushik Basu, economist at Cornell University, and Chief Economist at the World Bank, says the U.S. Federal Reserve should consider the current low labor participation rate and low inflation in its rate policy setting decisions in 2015. Basu points out that in the recent past unemployment has gone below the current 5.5% without increasing the risks of inflation. He cites the period from July 1997 to August 2001 when inflation was below 5%, and at some points below 4%, yet inflation in 2002 was close to 2%. The large number of discouraged workers in this economic cycle has placed the unemployment rate below what it really is, says Basu.

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Martin Feldstein points out why the recent agreement for a "fiscal compact" is no more than an empty statement about fixing the eurozone's finances. In this respect it is no different than the Stability and Growth Pact it replaces, with serious weaknesses. Feldstein cites the weaknesses in the language of the agreement. Each eurozone country is required to limit its"cyclically adjusted" budget deficit to 0.5% of GDP and bring its debt down to 60% of GDP. Compliance will be performed by the European Court of Justice and fines imposed. In practice the questions loom large- for a country like Spain with a 23% unemployment rate, isn't all of the 6% budget deficit cyclical? Again the agreement says deficits are calculated "net of one-off and temporary measures." Under this provision a lot of the stimulus programs would be considered in the category of "one-off." Other language lets eurozone countries frame budgets based on "exceptional circumstances" and "periods of severe economic downturn." Italy has declining economic growth, does it make sense to have a large budget surplus in that situation to lower debt to GDP, and how does that goal relate to "exceptional circumstances."...

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India's central bank chief, Raghuram Rajan, points to the risks for developing economies from changes in monetary policy of the U.S. Federal Reserve. The Indian rupee lost about a fourth of its value in 2013 as the U.S. Fed announced plans to withdraw from its quantitative easing policies. Large depreciations in other developing economies, Indonesia, Turkey and Brazil, happened at the same time. Rajan and India's Reserve Bank increased the interest rate by half a percentage point in 2013 to deal with the impact on inflation as a result of the large depreciation of the rupee. The volatility of capital flows and sudden reversal in inflows of capital to developing economies leaves these countries exposed to sharp declines in economic growth. India's growth has slowed to 5%, larger than expected from the slower growth in the global economy in 2013, largely as a result of decreases in direct foreign investment and capital outflows.

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Faced with low eurozone inflation of annualized 0.7% in October 2013, and low growth, the ECB lowers interest rates in the eurozone by 0.25%. The risk from deflationary pressures is high in Oct 2013. Weakening the euro from $1.38 in Oct. 2013 to $1.34 following the rate cut helps increase inflation through higher price for imports and helps boost exports. This brings rates close to zero and the ECB having to resort to quantitative easing in future efforts.

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Sheila Bair says she fears the next crisis will start in Washington. Bair points to the need for urgent action along the lines recommended by the Bowles-Simpson Deficit Commission. Areas identified by Bowles-Simpson should be tackled as early as possible, she says - tax subsidies for housing and health care that lead to misallocation of resources, defense spending, special-interest provisions. She points out that the increase in the deficit is a result of the unwillingness of governments over the last two decades to make the hard choices necessary to control the structural deficit. Total federal debt doubled in the last 7 years, to almost $14 trillion, or about $100,000 for every American household. Bair, as Chairman of the FDIC, played a critical role in the efforts to control the US financial crisis of 2008-2009. Relentless federal borrowing she says, undermines the confidence private investors have in US government obligations. The cost for bond investors and others to purchase insurance against a default by the US governmet went up from 2 basis points in January 2007 to 100 basis points in early 2009, and is now at 41 basis points. With 70% of US Treasury obligations held by private investors scheduled to mature in 5 years, a decline in investor confidence would lead to higher government and private borrowing costs. She writes this just as the debt crisis in Ireland is taking place, following the one in Greece, and contagion to Portugal and Spain is feared. Bair fears a similar loss of confidence in US public debt. High and volatile interest rates could lead to losses for financial institutions holding Treasury debt and raise funding costs for depository institutions....

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Details of the $825 billion stimulus plan. Renewable energy does well under the plan including production tax credit for renewables, with $32 billion for a "smart" electrical grid for which GE makes components and lobbied for. Renewable energy producers win an extension of production tax credits now convertible into cash for companies whose losses leave them unable to use the credits. Transportation infrastructure green projects did not do so well, with $32 billion for transportation projects and only $10 billion for mass transit projects.The Natural Resources Defense Council had compiled a list of more than 80 environmentally friendly infrastructure and transportation projects worth about $405 billion. Only a small number of these projects made it. What is in the stimulus to create jobs and stimulate capital investment? Businesses get bonus depreciation, which speeds up depreciation deductions for companies that invest in plant and equipment. The stimulus doubles the amount small businesses can immediately write off for capital investments and purchasing new eqipment, and gives incentives for businesses to invest in renewable energy. States get help with $90 billion going to increase the federal share of Medicaid payments, and an additional $79 billion to help states avoid cutbacks in education and other services. And there is a "Make Work Pay" tax credit for $500 per worer and $1000 per couple. Experts say the effects of the stimulus will be felt in the latter part of 2009 and into 2010. Which is one reason the view of economists that there would be a second half recovery does not reflect conditions on the ground. Goldman has revised its view to 2010 and even that may be optimistic. One example of what has happened in the stimulus in this respect is that the earlier optimistic view of largeinvestments in science and technology, broadband networks, and transportation projects for fast rail and transit have all been trimmed down. Part of the reason may be that the bill for the nation's banking system revival may be larger than realized as an additional amount of $15-20 billion is being negotiated for Bank of America and more money will go to Citigroup. $6 billion is shown for highspeed internet access for rural and underserved areas. Science facilities get $10 billion. Repair of public infrastructure (read roads and bridges) gets $31 billion. School modernization gets $21 billion. And modernization of health information technology systems gets $20 billion which its hoped will provide equivalent or higher returns to pay for some of the universal health care costs, and preventative care gets $4 billion. There is a tax credit for R&D work on energy innovations and renewable energy production of $20 billion, and $32 billion for a "smart electricity grid." These are the proactive parts of the stimulus that create something new and make improvements. They add up to $144 billion. So much money goes to shore up the existing services and supplement incomes, and to relieve stresses on the banking system, and other ways to shore up the system, that the proactive expenditures are only a small fraction or 17% of the $825 billion stimulus. And all the time the federal deficit and debt increases with these huge outlays just to shore up the system. The Heritage Foundation Data Analysis Director Mr. Beach told Congressmen at a discussion chaired by Congressman Cantor (R), on January 16, 2009, that the federal debt would reach 92% of the nation's GDP in 2009 from 58 billion or 70% in 2008, with the $825 billion for stimulus. The federal deficit would go up to $1.31 trillion or 9.2% of GDP up from $541 billion in 2008. See the research paper on the Heritage website. ...

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Criticism of the European Central Bank policies and Mr Trichet's role.

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Brazil's economy is forecast to contract by 2% in 2015, the currency has lost about one third its value and the stock market is down 22% in the last year. This follows the decline in demand for Brazil's commodities exports as China growth slows down. Experts say Brazil is now seeing another boom bust cycle similiar to boom-bust cycles in the past, such as the 1966-73 boom followed by years of hyperinflation and stagnation. Brazil's exports to China declined 17% in the first 7 months of 2015. The crisis is in many ways similiar to crises in other emerging markets dependent on commodities exports. The resources boom leads to overvaluation of the currency, and decline in development of manufacturing away from dependence on commodities exports. Other errors rise from complacency and politics prevalent in such periods. These errors include mismanagement of resources with poor resource allocation decisions such as spending on soccer stadiums in cities in the northeast while basic bus services remained underfinanced in large urban areas, large overspending by the government using state owned bank BNDES to offer rates at below market rates, a credit fueled boom and credit card binge for households, and a reversal of capital flows from the U.S. and Europe with the sharp decline in investment climate. There is a severe loss of confidence in the government of Dilma Rousseff with her approval rating as low as 8%. Corruption scandals at Petrobras show close links between the Workers Party of Rousseff and executives, with about $2 billion in misused funds. Brazil, like other emerging markets such as Russia and India, have taken some lessons from the 1997 financial crisis by setting aside large foreign exchange reserves for a crisis. Brazil's reserves of $397 billion help it cushion the effects with funding of the safety net and support to industries to avoid large layoffs. Other problems not tackled as in Mexico, India, and other emerging markets, are the weak educational system, and poor infrastructure, that create bottlenecks for growth. Brazil could face a lost decade after the debt overhang, decline in foreign investment and commodity export generated revenues. ...

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Bond issuance for African countries will continue in 2015 at a slower pace with the expectation of U.S. Fed raising interest rates in late 2015. In 2013 African countries raised $11 billion, and in 2014 $8 billion, compared to $1 billion in 2000, as these countries from Nigeria to Ghana raised money to finance infrastructure development. Ivory Coast plans to raise $1 billion in coming months, Tanzania plas to issue a dollar denominated bond. Senegal, Angola, Kenya and Ethiopia are issuing bonds to western investors and competing with other developing countries such as Bolivia, Guatemala and Romania for investors. Analysts say countries such as Ivory Coast, with a growth rate of 8% and prudently managed finances are considered "good issuers" in today's market.

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Hilsenrath cites Robert Hall, a Stanford University professor whose research shows three fourths of American households do not have two months worth of income put away as cash or other liquid assets. The Federal Reserve researcher Karen Pence says 41% of households can borrow less than $3000 on their credit cards and 23% have been turned down or discouraged from applying for credit. This shows the general financial weakness of overly indebted American households and the overlayed effects of the housing crisis, and higher unemployment. It suggests the margin for consumers to weather difficulties and increase spending is thin.

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U.S. Federal Reserve chairman Ben Bernanke tells the House Financial Services Committee hearings that the Fed will give importance to underemployment, not just the unemployment rate, in making decisions about bond purchases. The unemployment rate could be a false indicator of the labor market if the rate falls below the Fed's goal of 6.5% before raising interest rates, and yet labor markets are still weak because of underemployment. Bernanke said: "There are a number of problems with the labor market. Unemployment is one problem, but long term unemployment and underemployment- and by 'underemployment,' I mean people either who are working fewer hours than they would like or possibly working at jobs well below their skill level- is also indicative of a weak labor market." In this situation of high underemployment combined with low inflation the Fed may hold off on raising interest rates when the unemployment rate reach 6.5%. In Bernanke's words: Reaching 6.5% unemployment "would not automatically result in an increase in the federal funds rate target." Since 2010 financial markets in the U.S., and to a lesser extent worldwide, have looked to U.S. Fed policy for raising interest rates, as guidance on the degree of support for the economy and by extension for markets....

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Estimates of the exposure of European banks to Greece's sovereign debt shows BNP Paribas has 5.01 billion euros in exposure to Greek debt, Societe Generale 4.23 billion euros, Deutsche Bank 3.02 billion euros, and HSBC 1.94 billion euros, Credit Agricole 0.85 billion euros, Unicredit 0.80 billion euros, Santander 0.51 billion euros. The exposure of French, German, Italian and Spanish banks in Greece is a critical difficulty in resolving the crisis, as the banks are still in a fragile condition after the global financial crisis of 2008. With the debate on resolution of the crisis focusing on how a three way distribution of the burden should take place between austerity cuts, bondholder and creditors, and taxpayers in Germany and other EU countries, negotiations are finally taking place between each European government and the banks of that country. Three countries where such talks are taking place are Germany, France and the Netherlands. Finance ministry officials in Germany and France met with representatives of the banks and insurers in their country to arrange for the banks to voluntarily take losses on their holdings. The respective holdings of Greece's government debt according to the Bank for International Settlements are: French banks $14 billion, German banks $22.65 billion. Overall exposure to Greece is higher for French banks- at $56.7 billion for French banks and $33.97 billion for German banks. This opens the door to a Brady Plan type solution for the financial crisis in EU countries Greece, Ireland, Portugal and Spain....

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The Peronist candidate Alberto Fernandez wins Argentina's election with 48% support. Mr. Macri's economic policy led to mismanagement of the economy, and recession, high inflation. Mr. Macri took on $100 billion in foreign debt and had to turn to the IMF for a $57 billion bailout. The shift in administration happens as the peso tumbles. By lifting capital controls in 2016 when the official rate was 10 to the dollar Mr. Macri shifted direction but failed to manage this in a prudent way leading to a jump in the foreign debt. By the second half of 2018 this policy led to the peso falling to 45 to the dollar and another drop by mid 2019 to about 60 to the dollar. The central bank has burned about $22 billion or a third of the central bank reserves to defend the peso, including $4 billion only last week. A third of this decline in reserves is due to withdrawals as capital controls were reimposed., the remainder due to interest on debt and bank interventions in currency markets to defend the peso. Customers are now limited to $100 in withdrawals leading to demand in the black market pushing the rate to 75 pesos to the dollar. Argentina is no stranger to these crises, yet they repeat every 10-15 years. The earlier Peronist administration of Mr. Nestor Kirchner came in when there was economic collapse in 2003 and had to suspend debt payments as a last resort. Negotiations were begun with lenders only after 2007 when Mr. Kirchner's wife Christina Kirchner assumed office. She won the election in 2011 but was defeated in the 2015 election by Mr. Macri, and reelected in 2019 as vice president running under her former chief of staff Mr. Alberto Fernandez. The Peronists are a socialist party and restored a degree of stability to the economy, limiting foreign debt and managing the economy with a rebound in commodity prices such as soyabeans exported by Argentina to meet growing demand in China. By 2015 the country appeared ready for a change, but Mr. Macri's austerity policies and mismanagement of the debt led to a repeat of earlier crises with high inflation and collapsing peso, hitting working class Argentines.    Argentina has a long history of alienation with IMF loans with policy strings attached for austerity spending, starting in 1957.  About 58% of the people who voted Macri into office opposed turning to the IMF in May 2018 after interest rates were raised to 40% by the central bank to stem a drop in the peso. The IMF loan this time was a shorter duration loan on better and was supposed to help Mr. Macri stabilize the economy and its cash and payments position. The jump in foreign debt including issue of dollar denominated bonds, lack of caution and prudence in managing the finances, lack of currency controls, drop in foreign investment by 2019, and the fall in commodity prices from the commodity boom years especially soyabeans, combined to create another collapse in Argentina. It was thought that the 2003 crisis that hit the working class and poor hardest was behind it once and for all. Yet only 15 years later the country is in a similar mess and hardships, showing that prudent management of finances, maintaining social programs to support the middle and weaker segments, and ways to create sustainable growth from within, are still the major problems facing not just Argentina, but also Brazil, Chile and other nations of Latin America.   ...

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Feldstein's thoughts in April 2009, on Treasury's Public-Private Investment Plan. First, he says this plan will only remove $500 billion of impaired assets. The banks he says now own $3 billion of residential mortgages, $1.5 trillion of corporate real-estate loans, and $1 trillion of consumer debt. Not all of this is impaired but the banks will have to sell much more than $500 billion to regain confidence in their solvency. And with one third of all residential mortgages exceeding the value of the houses, and thie many homeowners under water, likely to default, the negative feedback loop of foreclosures begetting falling prices begetting foreclosures, threatens the whole effort to shore up the defences. If no workable solution is executed quickly to prevent this then even larger pools of mortgage debt will be impaired irretrievably. Feldstein suggests that the Obama administration seriously look at his plan suggested in March 2008 to provide government loans at low rates of interest like 1- 2% for 20% of the principal amount of the mortgage and then reduce the mortgage principal by 20%, thus keeping millions of homeowners above water. But this needs to be done quickly. All voluntary efforts have failed and have become asmokescreen for banks and lobbying groups with support from Congress to make it appear that this problem is being addressed. Thirdly Feldstein says that if banks sell these impaired mortgage assets at a loss- say 40-60 cents on the dollar on the upside with government and the FDIC picking up alot of the risk and financing for private investors under the new plan- they will now have to show the loss whereas they could have previously shown these assets at unrealistic price levels but still not taking losses. This might push banks into insolvency, so banks will need more injection of capital by the government to make this possible. What are the risks in this situation? Without an effective plan to prevent the negative feedback loop of foreclosure waves and falling houseprices, the quantity of impaired assets will simply grow larger. In effect even if some private investors take out some of the impaired assets from the banking system, it is possible that a new set of assets equal to or larger than these assets that are taken out are added to impaired assets in the banking system as house prices fall steeply from new foreclosures. That only means the economy is in the same hole as before, or in a slightly larger one, even with all the well intentioned steps. At some point the private enterprise argument has to be seen in the correct light. It is not that there is any argument that private enterprise can function better or far superior, it is only that the banks as private enterprises are in such an enormously stressed situation that the bank executive's cannot execute a way out of this mess. ...

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The U.S. falls to 19th rank in the Social Progress Index. This Index is another measure of how well a country is doing in meeting the needs of its average citizen for education, health care, opportunities in life. Experts say GDP and GDP growth alone are a poor indicator of how well a country is doing. High levels of student debt, the aftermath of the mortgage crisis job losses and low interest rates that have slashed the average person's savings, lower access to education and health care with high costs, lower wages and job loss in manufacturing, are pushing the U.S. down the ladder in this ranking. It is also showing up in the domestic political unrest from poorer working class and lower middle class people. Finland, Norway, Sweden, Denmark, Canada, Australia, Switzerland, Netherlands, do the best and are in the top ten in the rankings.