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Christopher Wood points to deflationary trends in Europe and the USA. Bank for International Settlements (BIS) data shows European bank exposure to government debt in Portugal, Italy, Ireland, Greece and Spain at $2.8 trillion at the end of 2009, and a rise in the London interbank offered rate (LIBOR), as further signs of negative trends. The property bubble in China and strong action to tighten and use antispeculation measures have already led to transaction volumes in residential real estate falling rapidly. If Beijing reconsiders further appreciation of the yuan, a trade debate with the U.S. may intensify. All this points to increasing risk of a double dip recession.

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The Economist looks at real estate markets in the U.S., Canada, Britain, Germany, Hong Kong, India and other countries in May 2013. It looks at price to disposable income and price to rent ratios and sees if these ratios are higher than historical averages to determine if prices are based on sound foundations. Canada's real estate market looks set to face problems of a bubble bursting. The U.S. recovery is seen to be based on firm foundations. Property prices are undervalued in Germany and set to rise.

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Apple App Store sales are estimated at $15 billion for 2014, increasing by 50% from 2013. Apple says it has directly or indirectly created one million jobs in the U.S., with two thirds of this in software development by developers to run programs on iPhone, iPad and iPod. The App Store opened in 2008 after the introduction of the iPhone in 2007. Other jobs created by Apple are the 300,000 working at parts and materials suppliers, or construction workers at Apple facilities. Apple employs directly 66,000 workers in the U.S., with 30,000 of this in retail stores.

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Krugman says France is getting a lot of attention, but it is Germany where attention needs to be focussed. German long term bonds are yielding 0.7%, a yield level associated with Japanese deflation. He says Greece's problem was a fiscal mess limited to a small country, and Italy has a problem of low productivity that is unique to Italy over several decades. Loss of French competitiveness is overstated, as France has only a small trade deficit, and some of that lack of competitiveness comes not from excessive growth in cost and prices but from policies pursued in Germany. He points to France's GDP deflator (the average price of French goods and services) since 1999 when the euro started, as rising 1.7% a year, and labor costs rising 1.9% annually. By comparison German price growth was 1% and labor cost growth was 0.5%. France is close to the ECB target of 2% inflation. Germany falls way short of the 2% inflation target.

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The historical allusions in the media in Greece, Italy and Germany, and cultural perceptions which have increased differences in the European Union. This comes at a time of austerity programs in the Southern tier of EU countries and pressure on Germany to fund the debt reduction in some EU countries.

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Spain's cabinet announced new changes to labor laws to provide incentives to business to hire. Spain has some of the most restrictive labor laws in Europe and high unemployment. The unemployment rate reached 23% in December 2011, and about half of the people under 26 are unemployed. The cost of downsizing is so high in Spain that Spain's representative on the executive committe of the European Central Bank, Jose Manuel Gonzalez-Paramo, says companies prefer to close rather than downsize. The World Bank has singled out the labor laws as one of the main reasons for Spain's rising unemployment rate. New rules will reduce severance payments to 33 days per year of employment from 45 days. Severance packages will be reduced to a maximum of 24 months from 48 months. To encourage companies to hire permanent workers and depend less on temporary workers the new rules say employers must switch temporary workers to permanent contracts after two instead of three years. As an incentive for companies with a maximum of 50 employees to hire young people the rules give a 3000 euros corporate tax break for each new person hired under age 30. If the hired person was jobless he can still collect 25% of previous unemployment benefits for a limited period with 50% of the unemployment benefits going to the employer. Companies having losses for three consecutive quarters are allowed to pay less in severance payments- only 20 days per year of employment. Companies will now find it easier to leave collective bargaining agreements and make deals with their own staff. Luis Garicano, a professor at the London School of Economics, says this is a good step forward. He finds missing from the new rules subsidies to train young and unemployed people given the high dropout rates in Spanish schools. The government approved the rules by decree, but they will be discussed in the Spanish parliament. The government of prime minister Mariano Rajoy was recently elected with an overwhelming majority in parliament. This makes making major changes different from the process in Italy where a consensus has to be established....

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Ireland and Portugal both have debt to GDP ratios of more than 100%. Still Ireland is better positioned to weather the eurozone crisis. Foreign investment attracted by low taxes and an educated labor force gives Ireland signficant advantages to return to growth. Citigroup forecasts show a 5.5% decline in GDP for Portugal in 2012, and large probabilities that the deficit will overshoot. Ireland expects 0.5% growth in 2012. Ireland's exports are 60% of GDP, compared to 24% for Portugal. Yields on Portuguese bonds due 2020 are at 13%, compared to less than 7% for Ireland. But funding Portugal through the end of 2015 is expected to cost 40 billion euros, according to Capital Economics estimates, or only 0.4% of eurozone GDP, making the problem in Portugal very manageable for the EU.

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Italy's prime minister, Mario Monti, a senior EU official before becoming prime minister, has the credibility and credentials to bring the French and German sides together on a new plan forward for the European Union, says Steven Pearlstein of the Washington Post. In this report from Rome, where leaders of Italy, Spain, France and Germany are meeting to discuss solutions Pearlstein describes the solutions Monti is putting forward. The European Investment Fund would be built up so that it has funding of about $175 billion or 1% of Europe's GDP to finance truly productivity and growth enhancing projects of innovative small and medium sized business in transportation, energy, education and environmental sectors. These companies have suffered shortages of capital as banks pulled bank from lending. It is the inadequate private investment that is causing the greatest damage in this crisis and $175 billion is at the low end of the amount needed in this crisis. Other steps Monti is pushing forward- for immediate steps to tackle the crisis deposit insurance to prevent a run on banks is essential for European banks. This would come with a eurozone regulatory authority that would have the powers to regulate European banks. The European Financial Stability Facility would be the "sovereign buyer of last resort," under Monti's proposal. Eurobonds come up as a key part of the solution. This is not because German and French taxpayers would be required to finance economies of Spain and Italy. As was shown by the U.S. Troubled Asset Relief Program (TARP) a well designed program could pay for itself. This would include the EU financial authority taking up stakes in the banks getting help and closing banks that are insolvent. The key point is that if properly executed and executed in a timely and appropriate way this does not have to cost French and German taxpayers- the important thing being to support the eurozone economies before the situation deteriorates. Borrowing at 6% for Spain and Italy will only put the situation out of control as deficits rise rapidly. The concessions for tighter regulation of European banking systems, reducing risk in banking, setting up adequate reserves, closing poorly run banks, and ceding powers to a European Financial Authority that can make the final decisions, are the steps that would have to go with these arrangements. Sound financial management requires that the kind of banking risks taken in the speculative bubbles in Spain, the lack of transparency and credibility in banking estimates of bad loans in the system, and the glossing over the problems at Bankia, would have to be addressed in solutions through regulation by a credible European Financial Authority to convince skeptical German public opinion that financial accounts are conducted in a proper manner....

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This WSJ editorial in September 2014 says many of president Obama's statements and decisions on Obama healthcare legislation and implementation, Syria, NSA and privacy, the Middle East, Russia, showed poor judgement. It refers to a piece by Peter Baker in NYT where it is said that Obama mocked how people see him as too professorial, diffident, in a sarcastic statement. The problem says WSJ is that president Obama has poor judgement. Being academically credentialed and quick grasp of subject matter is not the same as having the ability to discern things, instinct and grasp of the essence of the matter. George Bush senior had a long resume and was academically credentialed. By comparison Truman had a short resume and was not academically credentialed or quick with data and analysis. He had something more essential and important- a discerning mind and grasp of the larger picture, as well as listening abilities for exceptional advisors such as General Marshall and Acheson he gathered around him....

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Faiola points to public opinion in Ireland that shows the recovery in Ireland looks better on paper than it really is. Opinion polls show a large gap between the views of the government and of people in Ireland. EU estimates of growth in GDP of about 1% is inflated by profits of multinational companies such as eBay, Facebook and Google, a large part of which is repatriated. The multinational companies employ only 7% of the workforce. In reality consumer spending, retail sales and bank lending have suffered, and unemployment is at 14%. The feeling in Ireland is that the austerity cuts alone- spending cuts, higher sales and property taxes- with no effort to support growth, will leave the country in this situation for many years. A ruling by Ireland's attorney general that a referendum is required for approval of the new EU agreement on fiscal discipline, means that a referendum wll be held in June 2012. In 2001 and 2008 Ireland rejected EU treaties, only to obtain concessions and approve the treaty in second referendums. This time the referendum is expected to be seen as a vote on the three year agreement reached by Ireland with the EU, the IMF, and ECB in 2010, as its banks were on the verge of collapse in a property bubble. That agreement imposed strict austerity measures. Under the treaty terms only 12 of 17 EU countries have to ratify the treaty. The Socialist candidate in upcoming French presidential elections, Mr. Hollande, has called for renegotiation of the fiscal treaty to include measures to promote growth. For young people in particular, immigration- to Australia, New Zealand, Canada- is looking like an attractive option. For new graduates jobs are scarce, and cuts in university subsidies mean additional out of pocket costs of over $8000 a year with no student loan options....

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Spain's national statistics agency confirmed that the Spanish economy contracted by 0.3% of GDP in the 4th quarter of 2011. The central bank of Spain predicts the economy will contract by 1.5% in 2012 if Spain makes spending cuts to meet the defict target committed by Spain with the EU of 4.4% of GDP. The deficit was 8% of GDP in 2011 and the new Rajoy government announced cuts and tax increases amounting to 1.5% of GDP. A separate IMF report predicts a 1.7% contraction in GDP of Spain in 2012. Opposition party leader Rubalcalba says Spain should renegotiate its deficit target with the EU in the light of the expected contraction. Spain's prime minister Rajoy hinted he would move in this direction.

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The Economist cites estimates from the Bank of England showing Britain's national output peaking at 1.5 trillion pounds in 2007 and not likely to return to that level till 2015. It points to fears of a lost decade. Meanwhile debt is rising from 600 billion pounds in 2008 to 1.1 trillion in 2012, making reducing the debt to GDP ratio by 2017 even more difficult. Lower growth affects tax revenues even as social benefit costs increase. Part of the problem is that from 2009-2010 to 2011-2012 public sector net investment declined from 48.5 billion pounds to 28 billion pounds. The Economist suggests Chancellor Osborne take up an additional investment in infrastructure of 28 billion pounds, even borrowing 14 billion pounds in the bond markets if needed, as a prudent step to revive growth. Small improvements in rail, roads and bridges could make up for a lack of large projects. Other suggestions include expanding the "funding for lending" scheme with banks to get capital to small business, finding more savings in the National Health Service, and changing the way Britain taxes development land that remains undeveloped. Britain, now joins, Portugal, Spain, France and Italy, in the failure of austerity measures alone creating a return to economic growth and lower deficits. In 2013 improving competitiveness and boosting economic growth become critical following years of austerity measures....

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Renewed warnings about the bubble in housing prices in China. Earlier warnings came from Krugman, Lardy, John Taylor. This one comes from Nomura economists Zhiwei Zhang and Wendy Chen. Could the government's action to curb rising housing prices not be adequate leading to a financial crisis as early as 2014, is the question posed by Zhang and Chen. They cite the rise of housing prices by 84% from 2001 to 2006, before the financial crisis of 2008 in the U.S., using the Case-Shiller housing price index. One problem- the government statistics may have underestimated the extent of the bubble. China's official index shows housing prices rising 113% in major cities from 2004 to 2012. Zhang and Chen say this is much smaller than the actual rise because it includes older, lower quality housing property. They cite an academic paper that adjusts for this and finds prices jumping by 250% in the period 2004 to 2009. Another problem is that China's housing prices growth slows after government action but then resumes the growth, leaving the risk exposure at the high level as before. Because the local governments are tied up in the housing bubble the problem would hit the banking system. About 14.1% of the outstanding bank loans are to local government financing vehicles, and 6.2% to property developers, according to Nomura economists. The declining potential growth rate in China means there is less room for bad loans to be absorbed by hyper growth levels than in the past. Errors in policy can magnify the risk including loosening monetary policy and exacerbating the bubble at the wrong time. In the absence of errors the risks still remain requiring the sale of public assets to bail out local governments and banks. The argument made by Krugman and other economists has been that China is not immune to the risks of a housing bubble going bad, in any way less than Sweden, the U.S., Spain and other countries, requiring bailouts of banks....

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This editorial in the Wshington Post is sharply critical of the Obama administration's policies of inaction in Syria and Iraq. It says president Obama and his administration will have to answer for the policies to the American people and the people of the Middle East and Europe.

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Like hundreds of thousands of other young migrant workers in China's factories, Yuan Yandong is from a rural area and lived on a farm. Better incomes have brought them to the factories in urban areas. In this case travelling long distance by train from Guangdong province to Shenzhen. As living standards improved across China and the government expressed a keen willingness to encourage workers to exercize their rights to fair wages and working conditons- especially by creating increased awareness of new labor laws in the state run media- migrant workers are becoming restless with conditions they accepted a few years ago. The growing use of cellphones and access to the internet have made news travel faster. A visit to a Foxconn factory shows a young worker, age 24, sitting on a stool 6 nights a week, 12 hours a night, with a quota to assemble 1600 hard drives for American computer storage company EMC, with the pressure to work continuously against the clock for each step in the manufacturing process. Foxconn is known for its highly disciplined nature of work, akin to a military style. Behind the scenes factories like Foxconn employ methods once used in the US at a similiar stage of industrialization, with 500 technical people continuously looking for the most efficient way to organize each step in the production process. Each movement and action of the worker is measured for time taken and process efficiency, according to experts at Tsinghua University in China. This means many factories can use less automation- and so less capital intensive manufacturing- and go to extremes where workers perform like machines. Yuan's ambition is to work only for another 2 years and then use his savings to get into hotel management. His wages are 75 cents an hour, and with the overtime premium about $235 a month. Foxconn announced a 33% raise in wages as a result of worker protests. The mind numbing monotony is becoming less acceptable in a changing China, and worker turnover in such factories is rising. After the initial burst of industrialization in which young migrant workers played a signifcant role in manufacturing, a new chapter in China's development is beginning- one less likely to create the large trade deficits with the US and Europe- which is moving in the direction of a larger domestic market with higher worker wages....

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Steven Erlanger describes the mood in France as it faces problems of improving competitiveness in a rapidly moving global economy. A sense that the actions of the Hollande government will not be enough to tackle the need for deeper changes.

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The WSJ's Christopher Emsden and Alessandra Galloni's interview with Italy's Labor Minister, Elsa Fornero, after major changes to Italy's labor laws including Article 18. This is a major change for Italy. She describes the problems she faced and how she has tackled them to get the new labor law passed. Fornero will set up a monitoring system to ensure that the law's imprementation takes place smoothly. To make the change Fornero took apart Article 18 to its constituent elements, preserving the anti discrimination aspect and the right to appeal, but allowing employees to be terminated for economic reasons. This puts Italy on an even footing with its europartners Germany and France, and addresses one of the main reasons Italian businesses are loath to hiring new employees. It also addresses the main reason why foreign investment in the Italian economy is so scarce. In achieving this Fornero faced the lack of support from Confindustria, the business association (which does not cease to amaze her), CGIL, the labor unions, and the political class in Italy, with each side wanting to tweak the system to make gains or get special exemptions. Fornero is a pensions expert and economics professor at the University of Turin. Her ministry covers pensions, labor, welfare and equal opportunity policies....

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U.S. president Trump's statement calling for a list of goods for tariffs on $200 billion of Chinese goods leaves China without a clear response and facing new risks. The U.S. exports about $150 billion in goods to China so that China would have to impose penalties to respond at the same level. Placing restrictions on American firms on access to China's market, and imposing other penalties would have the effect of reinforcing the perception of unfair practices targeting American business and lead to hardening of U.S. response.  The U.S. sees itself as being in a better position with the U.S. economy experiencing a growth trend. China with large local government and bank debt faces a difficult situation. President Jinping's policy of reducing the risks of bad debt in the banking system involved sacrificing some growth to stabilize the system. China's GDP growth in 2017 was 6.9%, the target at 6.5%. Future targets and actual growth now look to be much lower.The trade war with the U.S. has the effect of dampening growth leading to calls for the central bank to loosen its monetary stance. In response to Trump's announcement the People's Bank of China pumped $31 billion into the nation's banks. China is studying Japan's response in the 1980's and 1990's when the U.S. took strong action against Japan's growing trade surplus. Japan responded by appreciating its currency and using stimulus to cushion the effect of lower exports on the economy. The stimulus led to the housing bubble and over time a period of low growth and stagnant economy. The large China stimulus in 2008-2009 has compounded the problems in the banking system. Not deleveraging and controlling financial risks in China's banking system because of the trade war would bring a new set of risks. ...