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Brazil's debt at 57% of GDP which is not likely to decline in 2014, is a concern for analysts at Moody's. Heavy spending and lower tax revenues with high interest rates will increase the deficit to 3.7% in 2014 from 2.48% in 2012, according to central bank estimates. Inflation is about 5.98%. Trade surplus is lower at about $2.6 billion for 2013. Brazil's foreign reserves are much higher than Argentina at $359 billion, ten times short term debt, Argentina at 109% of short term debt and Turkey at 84% of short term debt- which protects Brazil compared to its reserves in the 1997 financial crisis.

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Home Secretary Yvette Cooper predicts "swift justice" for rioters on British streets. She tells Sky News: “So we should be clear, there will be people who were thinking they were going on their summer holidays this week, and instead they will face a knock on the door from the police.”

On BBC Radio 4’s Today Cooper said: “We have seen truly appalling criminal violence and thuggery in some of our cities and towns – it is a total disgrace. These people do not speak for Britain.”

Police she said would follow the “full range of prosecutions and penalties” including prison sentences, long-term tagging and travel bans, she said, adding: “Keir Starmer has made clear he is prepared to take whatever action is needed to keep streets safe.”

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This piece in the Economist says the men involved in sexual harassment in Cologne identifed so far were Moroccans and Algerians, not Syrians. The police in Cologne are seen as failing to identify sexual attackers and apprehend them on the spot. Tensions will exist because of the different values in the Middle East, and as in America, the Economist says the refugees must be required to adopt the values and norms of the new country. Because most of the refugees are men, this could skew the men to women ratio in some places which welcome refugees, and for this reason the men should be allowed to bring their spouses. So far German chancellor Merkel has acted firmly, calling the sexual attacks "disgusting," passing laws that would make it possible to quickly deport those migrants and refugees who break the law in Germany. This is the right way to tackle the problem. In the long run the immigration will help countries such as Germany tackle the problem of aging of the labor force, yet in the short run stronger action is needed to prevent any abuses to the humanitarian welcome offered refugees. The problem of economically motivated migrants remains- Britain, Germany and France all agree that these migrants should go back to their home countries, as prime minister Cameron and chancellor Merkel have already affirmed....

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A WSJ interview with Jose Socrates, the prime minister of Portugal. Socrates says he supports more European integration in economic matters. The context for this is the meeting of 26 leaders of European nations in Brussels on February 4, 2011. Germany is pushing for major changes in the way the European Union works so that economic integration is coupled with the political integration process. This is now thought to be the only way to make the EU work, and both Germany and France are pushing for this. This is also the price of German financial support to countries like Ireland, Greece, Portugal and Spain. In an earlier interview with WSJ, Spain's finance minister, Elena Salgado, offered her support to the German plan. Aspects of the economic coordination Socrates supports are pushing up the standard retirement age to 65, which Portugal has done. He is less supportive of de-linking wages to inflation. There he pointed to the 5% public sector pay cut to go into effect this year. Socrates says the challenge for Portugal is "not to be more competitive with lower salaries." He also provided statistics that show that " this is a modern country." Statistics on electronic government tenders, the ratio of computers to children, the percentage of energy from renewable sources. And said people are talking who have preconceived ideas and don't know anything about Portugal. ...

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Malkiel says both sides in the investor debate are right. Those saying the CAPE ratio in the U.S. at 25, well above long run average of 15, are right to point this out. So are the others in the debate who point to the lack of alternatives for investors when the 10 year Treasury bond is at 2.4% and short term rates essentially at zero. Stock prices reflect the discounted present value of future cash flows from dividends and capital gains. This discount rate in 2014 has to take into acount the rate on low risk securities such as 10 year U.S. Treasury bonds and and a premium for riskiness of the stock market. Add three or four percentage points to this and one gets a low discount rate for future earnings that helps support reasoning for higher stock prices, says Malkiel. On the issue of low interest rates Malkiel's view is that they will be around for a long period because the unutilized productive labor capacity and low growth are likely to persist for a long period. Here he supports Fed chairwoman Yellen's view based on the U6 labor utilization. He also sees the long run equity returns from today's prices to be much lower than the 10% long run average. By accomodating both sides Malkiel supports a broadly diversified portfolio with adequate room for emerging markets and international stocks....

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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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The problems in the commercial real estate bad loans that make it too hard for the government to rescue. An adjustment here could slow the economy in the years ahead and expose banks to big losses in the $3.4 trillion outstanding commercial real estate debt. Big banks benefitted from the gvernmet TARP program, and after the stress tests raised funds. But big banks held only 29% of the $1.84 trillion commercial real estate debt on bank balance sheets in the 2nd quarter of 2009, according to Foresight Analytics. Smaller banks with $1 billion to $10 billion of assets had $450 billion in commercial real estate exposure in the second quarter equivalent to 330% of Tier 1 capital. For the largest banks that ratio was much less at 99%, according to Foresight. And the smaller banks did not get stresstested the way the larger banks did and so wer not able to raise enough equity. Governmet plans to deal with this coming crisis are to hopwe that real estae prices recover. a recovery of 10% could cut those loans underwater to 37% from 68%. And regulators issued guidelines to encourage banks to restructure, not foreclose on problem commercial mortgages. But even if prices rise banks would want to pare exposure not refinance these loans. Meanwhile the $700 billin market in bonds backed by commercial real estate loans is moribund....

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Signs that Turkey's economy is growing and consuming beyond its capacity. The current account deficit is now at 8%, and foreign credit is helping finance the boom. General purpose consumer loans are growing rapidly- at 42% in 2010, and at 61% on average from 2005 to 2008- according to Standard Unlu, an Istanbul based investment bank. Banks are known to send text messages to borrowers if they qualify, so that the money can be picked up at the bank branch. Turkey has gone through two boom bust cycles- in 1994 and in 2001. The central bank of Turkey has increased the level of interest free deposits banks must keep at the central bank, a move designed to reduce lending. However Turkey's younger generation of consumers are on a spending binge, and access to personal loans is easy. Signs of an asset bubble are easy to find. A 24 acre plot in Istanbul's city center sold for $33.3 million.

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Reseerve Bank's efforts to slow inflation by increasing the cash deposits banks have to keep with the central bank by half percentage point to 8%, this is the cash-reserve ratio. Wholesale price inflation is at above 7% above the Reserve Banks desired rate of 5%, but growth estimates of Crisil are still above 8%, at 8.1%, for year ending March 2009.

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Since 2002 when the AKP came to power consumer loans have surged from 2 billion Turkish lira to 129 billion lira or $81.55 billion. While this has created a larger middle class, the huge expansion of credit puts the economy at risk say analysts. Turkey is taking in imports at a rapid rate and the current account deficit is now 8.1% of GDP. The ratio of the current aaccount deficit to foreign exchange transactions is at 37%, according to Ankara based economic research foundation Tepav. This is significantly above the level reached before Turkey's last four economic crashes. The EU is Turkey's biggest market for exports, and the fastest growing market is the Middle East. With the economic growth sluggish in both regions the prospects for Turkish exports increasing is weak. Signs of excess are visible in Istanbul. A shopping mall for cars is being built the size of three sports stadiums with a test track on the roof called Autopia. Prime minister Erdogan talks about building a huge new shipping canal that would bypass the crowded shipping in the Bosporus. And the elections are being fought for the AKP to get more than 330 seats out of 550 in parliament, which would enable the AKP to change the constitution. This will be an unneeded distraction for the country at a time when economic policy needs a sharp focus to reduce the current account deficit before it is too late....

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Poland has a huge shortage of doctors and nurses. The ratio of doctors to every 100,000 of population is the lowest in the European Union. It is twice that in Germany whose relative success in tackling covid pandemic comes from having foreign doctors and nurses treat patients. Consider that the average age of Polish doctors is 53, only a few years from retirement. The situation in terms of immigration reminds pone of East Germany and its depopulation of young people who left for West Germany. Something like this has happened in Poland in health care.  In similar ways other countries in the EU, Hungary, Slovakia, Romania stocked up on ventilators but now have few doctors and nurses left to operate them. It is stretching the limits of human endurance as this report shows in WSJ, with doctors working 36 hour shifts and working 73 hours a week.  Here we see Dr. Rotnicki, who works these long hours at a hospital in western Poland and says that it is like the Second World War, that it is hard times in Poland for health care workers. This report says Italian and British hospitals, not just German ones, are tackling coronavirus with Polish, Hungarian and Romanian doctors and nurses. This report shows that headhunters in Germany drive in to western Poland blanketing windshields with pamphlets promising 5 times more pay, 2 years of free language classes and housing. In Slovakia a third of all nursing graduates leave the coutnry immediately after graduation. In Poland not nursing pay has lagged behind with fewer going into nursing schools. Staff remaining in the region are older and educated under communism when less English was taught, or have returned back home from years overseas. Forcing doctors to give up private practice and work in public hospitals during coronavirus pandemic is not working in Hungary, where surveys find 6 out of ten medical school graduates intending to leave Hungary. These doctors say they are better off working at Aldi and Tesco if needed and making more pay, plus getting weekends off. Poland only recently increased pay for healthcare workers, some even survived on cash given to them by patients. Not a good situation for a country to be in and reflecting the wrong priorities not just in the U.S. and western Europe, but also in eastern Europe, during the last 3 decades. These priorities shifted money away from health care, education and infrastructure priorities. The people simply lost control of their spending allocation to "financial markets" that shifted money in a way that benefited only small group in society neglecting others and national interests. ...

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In depth interview with Kyohei Morita, chief economist of Barclays Capital, Finance Asia explores different aspects of the Japanese economy and developments after 1987 and under Koizumi, the role of exports and how ordinary households are affected. He points out a few important things about the Japanese economy that are not generally recognized. One is that Japanese banks are vulnerable in the way the subprime crisis has exposed banks in the USA. Their vulnerability comes from owning 15% of the shares on the stock market which came down from a higher number after years of reducing stock holdings. When the Nikkei drops below 9000 this reduces the bank's capital and leads to credit tightening. Morita points out the risk of turning a moderate slowdown from lower exports into a severe slowdown if banks are reluctant to lend. The other point he makes is that small nonmanufacturing companies in Japan have to thrive for Japan to thrive, but he is bearish about private consumption. In a revealing statement he says that in his research he has found that the path connecting corporate profitability to households is seriously eroding. This is due to globalization as Japanese companies are offshoring aggressively, and 30% of the Japanese market capitalization in held by foreigners. His point is that Japanese managers now tend to see wages as costs just like American managers do and not the way they did in the past, so salary costs are suppressed in favor of shareholder dividends which flow out of Japan. Finance Asia referred to an OECD study that shows Japan's ranking in terms of per capita income fell from fifth highest in the OECD in 1992 to 19th in 2002, a fact that Morita recognizes as strange as western economies have tended to follow relatively stable long term income growth, and which he attributes to Japan's terrible demographics with population shrinking since 2006 and more elderly and retired supported by a smaller percentage of working age people. In an exceptionally revealing statement Morita points out that Japan has globalized from the outside but not from the inside. Japan he says needs more foreign direct investment and ideas, and more immigrants, fresh labour and fresh taxpayers. Which is remarkably true as Japan tends to be rather insular as a country and tends to keep out immigrants. The influx of Polish and Eastern European immigrants to the UK under the Blair-Brown Labor government years would be unimaginable in Japan. In the meantime Japan's estimated $15.7 trillion in financial assets held by households or three time national GDP is something that makes it possible for now for Japan to sustain the upward trend in the debt to GDP ratio....

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Serious problems facing Turkey's economy. Turkey takes on too many risks as exports cannot keep up with rising imports leading to a severe current account imbalance. Official statistics show the economic growth at 11% in the first quarter, with the growth coming mainly from the construction, retail and financial sectors, and a result of a surge in demand and rapid credit growth. Imports expanded at 42.6% , and exports at 11.7%. The Turkish manufacturing sector has not strengthening its competitiveness. And increases in manufacturing output come from increased imports- with 85% of imports being commodities and semifinished goods, according to an Istanbul economist who contributed to a recent 350 page strategy report commissioned by the Erdogan government. Fast economic growth comes from rapid growth in credit, and consumption demand, but the underlying manufacturing competitiveness and economic fundamentals show warning signs. The government of prime minister Erdogan- distracted by politics and efforts to change the constitution- appears not to have grasped the urgency of the situation it faces....

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This editorial in the Economist points to the long term effects of a crash in China's stock markets. This would reduce access to equity markets for corporate funding. It would pose larger risks because of the increase in total debt in the Chinese economy from 150% in 2008 to more than 250% in 2015. The fallout would not be as large as in the U.S. after a stock market bubble collapsed in the U.S., because market capitalization is about 40% of GDP, and households have put about 10% of their wealth in stock markets. Coming at a time when China's economy is slowing, and it faces other problems such as addressing pollution, healthcare and other issues, this could lead to a further slowdown for a prolonged period. Most economists from Krugman to Summers, say China is no exception to basic rules of finance and economics. The indexes have accelerated in the past year- CSI300 index of China's largest mainland stocks doubling in the past year, and ChiNext market for startups tripling in the past year, and at P/E ratio of 140 times prior year earnings. 4 million new brokerage accounts opened in one week of April 2015, and a study shows about 66% of people buying stocks for the first time have no schooling beyond the age of 15. Margin financing has increased to 2 trillion yuan or $325 billion. Clearly unlike the U.S. investors and stock market authorites have not experienced the collapse of a bubble with all the economic distress for a prolonged period....

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The Economst cites an IMF June 2012 paper by Arcand, Berkes and Panizza that shows private borrowing and size of bank balance sheets once it reaches 100% of GDP begins to slow growth. A second paper by Cecchei and Enisse Kharroubi at the Bank for International Settlements confirms this showing that at low levels private borrowing and expansion of bank balance sheets increases economc growth, but at high levels exceeding 100% of GDP a large financial system actually hurts economic growth. Andy Haldane of the Bank of England points out the fact that for the century to 1970 bank assets increased by an average of 0.6% a year faster than GDP in 14 large economies, but increased much faster after this with ratio of assets to GDP increasing by about 3 percentage points a year. Bank assets increased from 50% of GDP in the 1960's to about 200% of GDP by 2007, reaching 500% of GDP in Britain, 800% of GDP in Switzerland, and 126% in the U.S. The increase in world trade accentuated this period with trade increasing from 22% of global GDP to 33% in the period 1996-2008, and banking following this trend across borders to developing countries. At the same time excesses caused an imbalance with hyper growth in bank balance sheets through taking on more leverage and banking risks. The Economist sees this process going back in reverse as bank balance sheets shrink in the face of regulation and efforts for financial stability following the 2008 global financial crisis....

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In this Agenda column Simon Nixon takes on the U.S. Treasury's criticism of Germany for its current account surplus of 7% of GDP in 2012, and not doing enough for the economies of southern Europe. The German government called it "incomprehensible." Nixon says it is better for the German economy to remain strong and to boost competitiveness and consumer spending in Spain, Portugal, Italy and Greece. He says the low eurozone inflation of annualized 0.7% for September 2013, which prompted the ECB to cut rates by 0.25%, is healthy to the extent that consumer prices are declining to adjust to a decline in wages. The reduction in labor costs is a way to restore lost competitiveness, just as Germany did in the last decade. The criticism is considered by many economists to be misdirected, and seen as "incomprehensible" by Germans, as Germans ask what would the U.S. have them do- provide stimulus when the government debt to GDP ratio is currently 82%, increase wages and how would this help Southern Europeans. Focussing on Germany's current account surplus says Nixon, is obscuring the larger issues of increasing consumer and business confidence and spending in the eurozone, and increasing bank lending. The new ECB bank resolution arrangements and other changes including deposit insurance if done right should help the recapitalization and restructuring needed for restoring bank lending to support recovery. Spain is furthest along in regaining competitiveness, with changes in Portugal, Italy and Greece also supporting a gradual return to growth....

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IMF forecasts for Greece's growth rate are proving too optimistic. The IMF forecast is for zero growth in 2013, and increases of 2.3% and 2.9% in 2014 and 2015. Even in its pessimistic projections the IMF forecasts a 1% downturn in 2013 and growth of 1.3% and 1.9% in 2014 and 2015. The government sector was a large part of the economy. Now that this is shrinking, the export sector which only represents 20% of GDP is too small to generate needed growth. Greece also lacks the competitiveness and the large foreign enterprises that operate in Ireland, making growth less likely. A major problem is also the 40 billion euros Greeks have withdrawn from their banks in recent years. Even the figure of 120% of GDP that is expected in 2020 under the March 2012, 130 billion euro bailout is a very hypothetical figure, having no sound basis. Landon Thomas cites a confidential study the IMF had circulated in February 2012, showing the long term prospect for Greek debt if growth does not materialize because of lack of competitiveness. It would increase the debt to GDP ratio to 178% by 2015, and leave it at the current level of 160% of GDP in 2020. Some experts say the whole debt sustainability analysis makes no sense, with the question being insolvency in the case of Greece, not illiquidity. And requiring a focus to bring debt to manageable level to create prospects for growth. The Wall Street Journal emphasizes this in its editorial on Feb. 29, 2012....

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The American consumer is becoming frugal since the crisis hit in 2008. But it will take along time to reduce the debt piled up over the years. By 2008 end American households had $13.8 trillion in debt, which is close to the $14.3 trillion output of the entire US economy, not adjsted for inflation in 2008. American households started 2008 with debt at 133% of disposable income. At the end of 2008 this had only dropped 3 percentage points to 130% of disposable income. With unemployment higher, companies reducing hours, and local governments having a certain number of days of furlough, and wage growth slow or nonexistent, the debt will take longer to reduce. WIth this debt overhang, and the lack of easy credit even though the credit markets are working again, its going to be harder to see a consumer driven V shaped recovery. In the 2001 recession consumers took on more debt to provide aconsumer driven V shaped recovery. At that time the debt to disposable income ratio went above 100%. See graph. And its gone up steadily since, with super low interest rates encouraging borrowing, and then as the Fed raised rates consumers went heavily into mortgages and housing in a speculative bubble. This time not only is the credit not there to finance such a recovery, but a number of conditions such as permanent loss of a large number of manufacturing jobs, rising unemployment and use of parttime workers, the need to payoff debt, create definite constraints to consumer spending....

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Analysts and experts says Turkey faces a debt bubble like that facing Spain and Ireland. The budget deficits in Spain and Ireland were considered manageable before the banking crises in the two countries. Turkey's short term borrowing- most of the $221 billion in outside financing needed for the private sector in 2013 is in short term loans. The large current account deficit and rate of growth in credit approaching IMF warning indicators are a problem. Volatile capital inflows could reverse as investors look for safe havens with the continuing street protests in Istanbul. Earlier currency crises in 1993 and 2001 were currency crises from volatile capital inflows. Turkey's central bank is trying to manage this situation and has $100 billion in currency reserves. But it is the hidden buildup of external debt by banks and companies in Turkey that worries analysts like Richard Segal at Jefferies bank in London. A $400 billion public spending plan, over 50% of Turkey's $770 billion GDP, is being prepared by the Erdogan government for the 100th anniversary of the founding of the modern Turkish state in 1923, showing that the scale of public spending is not under control. Analysts say at some point the huge credit bubble will burst, as it has in other countries including Spain, where the central bank appeared to have things under control. The street protests add political risk to the increasing risk for emerging markets with the U.S. Federal Reserve's policy shift to increasing interest rates....