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Efforts being made to convince the Spanish government of Mariano Rajoy to accept IMF aid to recapitalize its banks. The IMF released information showing Spanish banks would need to raise at least 37 billion euros or $46 billion to prevent a worsening of the banking crisis. The report was released before the meeting of EU finance ministers on June 9-10 to persuade the Spanish government to accept IMF aid. The eurozone bailout fund was given powers in 2011 to make loans to governments for the purpose of recapitalizing banks, with conditions and terms set for the financial sector not for the government's spending plans. According to people aware of the discussions taking place in the European Commission and the IMF, one option is to have the European Banking Authority and not the IMF oversee the program. This avoids the usual stigma of accepting aid coming from the IMF with strict conditions attached including restrictions on the government's fiscal plans.

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John Carney of the WSJ looks at the financial transactions tax proposed by 2016 U.S. presidential candidate Bernie Sanders to pay for high college tution costs.

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Entous, Malas and Abushakra of the WSJ give a detailed account of the series of smaller chemical attacks that ended with this large attack in the suburbs of Damascus in August 2013, the actions of key participants, and the responses of the global community.

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Zombrun describes the effect of low interest rates on savings for the bottom half of households in the U.S., the pressure to invest in stocks without the skills and experience of the better educated part of households in the top 20% of households by wealth and income. This resulted in a negative effect, a depletion of savings compared to an increase under a higher interest rates scenario with less pressure to take risks in a volatile stock market. This is the direct cost of the crises in stock and financial markets of 2000 caused by a internet bubble, and the larger crisis of 2008-2009 caused by the bubble in mortgages and housing. The secondary effects of the mortgage price bubble and faulty mortgage securities was in the millions of homeowners who went into foreclosure in 2009-2013, which further depleted wealth and savings of households in the bottom half lacking the experience and skills to navigate this type of housing market. The failure of the Obama administration to stem the foreclosures with practical steps which would have helped not hurt the banking sector, as suggested by FDIC's Sheila Bair and Harvard economist Martin Feldstein in many WSJ op-eds in 2010-2012, added to the erosion of savings and wealth of the bottom half. Minorities in particular were hit hard. A third effect is of communities across America that are feeling the effects of job migration to emerging markets such as China that has been underway as part of the globalization of the last three decades. A fourth effect in the rising cost of education, particularly since 2000, has reduced the opportunities for struggling working class people to enter the middle class and enjoy the higher incomes in precisely the very period when the divergence of incomes between less educated, less killed people and the more educated and better skilled people was taking place. The last two effects were neutral as part of the overall process of emergence of a globalized economy with a premium on more skills and education, requiring action by the government, universities and business for a concerted effort to mitigate in some places the negative effects and enhance in other places the positive effects. The first two effects were man made crises which required managing in constructive and positive ways for the entire American people, taking risks where necessary such as fears about the financial system if foreclosures did not go through. The risks of a long period of extremely low interest rates for savers and the middle as well as working class were poorly understood by the Fed since 2000. A similiar crisis is being faced in Europe with extremely low interest rates. Janet Yellen was only doing the honest thing by acknowledging how far and how different the situation is now compared to the period of three decades following 1945- a question not just of values cherished in America, also of the need for societies to advance through creation of wealth across all sectors of society or regress, as described by Smith in the Wealth of Nations....

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As the focus shifts to the east, the war in April in Ukraine shifts to a prolonged war. It also means that the focus now is also on economic separation of US and European economies from Russia and China. As it was this overdependence that lacked prudence or good sense, that emboldened Russia in its relations with the US and Europe, and China in its relations with neighbors in Asia. This report looks at the arms aid Ukraine may need to defend the region on its eastern border with Russia. Russia plans to focus on the separatist Luhansk and Donbas regions in the east which have sought closer ties with Russia. The war in the east has dragged on already for over 10 years.The rest of Ukraine and particularly western areas near Poland such as Lviv and areas near the Baltics have shown strong sentiment for an independent Ukraine able to choose her own path. Throughout history the Baltics and Poland have had a strong influence on western Ukraine and Russia on eastern Ukraine bordering Russia, with influence swinging one way or the other throughout Ukraine depending on the period in history. After the westernization and modernization of Russia under Peter the Great in the 17th century and of Prussia as a German state independent of the Hapsburgs in Vienna around the same period, geopolitics shifting the balance of power took on a bigger dimension. Putin's actions can only be seen as a throwback to using the tactics of invasion going back to this period in history from 1700 to 1950, when dominant powers France, Austria led by Hapsburg dynasty, and Britain with the Dutch fought wars seeking advantage mostly on territory of German states and Italian states, and in all parts of the world. This also laid the grounds for colonization of large parts of Asia and Africa by Europeans in this contest for dominance through trading companies that traded for profit, and used tax revenues from acquired lands for profit making and military activity. In some ways poor economic choices such as the excessive dependence of the US and European economies and their integration with China and Russia have led to the war. As they created advantages Russia and China did not have in technological capabilities and stronger economies that make war an alternative to support foreign policy goals. In the long term it is this these unsustainable economic choices that will be pulled back following the pandemic for shorter supply chains closer to home. This prudent economic separation could not have happened without recent events, as even now Germany industry says its dependence and integration with Russia is hard to reverse for gas supplies, and American business is only now making the changes away from dependence on China in its supply chain.   ...

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Krugman comments on Governor Jindal's remarks at a post election Republican gathering. Jindal told Republican leaders: "We must not be the party that simply protects the well off so they can keep their toys. We have to be the party that shows all Americans how they can thrive." Jindal's policies do not match this rhetoric, says Krugman. He cites Jindal's push to eliminate the state income tax in Louisiana and make up lost revenue by increasing sales taxes, which fall more heavily on the middle class and poor.

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The Alawite sect in Syria, a sect of Islam different from Sunnis and Shiites, consitutes only 12.5% of the 22.5 million population of Syria. Alawites live mostly in the mountainous coastal region near the Mediterranean. Under the French the Alawites who are open to foreign influences and western education, were used as a buffer against the majority Sunni population, with many Alawites joining the government and army. One of the Alawite military officers, Hafez Assad, took over Syria in 1971.

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Six cities have rejected the Olympics, with Calgary in Canada being the last one. The problem with hosting the Olympics is how much it costs. Cost overruns are common. 20141 Sochi WInter Olympics estimated budget was $10 billion, in the end it cost $51 billion. 

Brazil is the latest example of the problem. With huge needs in sanitation, epidemic prevention, infrastructure and public services, the country did badly by spending money on new soccer stadiums in the northeast which were not used after the World Cup soccer championship, and in the summer Olympics. 

Learning from these lessons voters in Calgary, Canada, rejected hosting  the Winter Olympics. Voters or local councils in Innsbruck, Austria, Rome, Italy, Bern, Switzerland, Hamburg, Germany, Oslo and Stockholm have rejected the idea of hosting the Olympics. Other problems are the environmental impact with deforestation to create Olympic sites.

 

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Meltzer points to the huge impact on wages in the U.S. from the millions of workers added to the global economy- as people from India, China and other developing countries competed for the same jobs as American workers- as a principal cause for increasing income inequality. The wages of the one percent were insulated from this and actually benefitted in the case of banking and finance. Current pricing practices in health care insulated the medical and hospital related professions. The effects of the global financial crisis- loss of construction jobs, foreclosures, and effects on savings hit the middle class and working classes hard, something Meltzer overlooks.

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MaC Group, a risk advisor to Spanish banks, says Spanish banks hold about 30 billion pounds of distressed real estate and unsellable land. Prices are down 28% from the peak in 2007, according to a report by the IESE Business School, and are expected to fall a further 15-20 percent in the next 2-3 years by some experts. Much of the bank owned land is far from city centers and there is no demand for this. One Madrid based consultant R.R. de Acuna Asociados, says 43% of bank owned land is poorly located and there may be no demand for unfinished residential units for decades. The new government of Mariano Rajoy plans to take action to cleanup the banking system. Louis de Guindos, director of PricewaterhouseCoopers and IE Business School Center of Finance is expected to become the new finance minister. Guindos says strict rules need to be implemented, with some banks able to handle this and others that won't. MaC Group's Cantos, a managing partner, says the gap is huge between prices offered by banks and what investors will pay- as much as 70%. Prime assets can be sold for 30% discount but the land, residential and commercial real estate will require discounts of 70%. Banks have made provisions for losses of 30%, and are now facing the prospect of another 40% in losses. As a result many of the medium and small sized banks which operate only inside Spain may have to be shut down or consolidated by the government of Mariano Rajoy. Only the larger banks like Banco Santander, Banco Bilbao, La Caxia, and Bankia are likely to surivive....

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Israeli intelligence from a Syria unit that oversees the movement of chemical weapons in Syria was the source confirming that the weapons were moved to Damascus suburbs to prepare for an attack on a rebel held area.

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Michael Powell of the NYT shows what is wrong about the Olympics model of the IOC having host cities build costly facilities just for a two week period. Cities that have suffered paying for the Olympics in recent memory are most strikingly Athens, Greece, and some observers say the Greece crisis started about the time the Olympics were held there. In Greece as in Rio, corruption, and mismanagement, are major issues. In the case of Rio the Olympics were held following a time of widespread protests as the economy hit a recession, and corruption scandal at Petrobras and in the government led to public anger. Most striking is the fact widely reported that the Rio government does not have enough money to pay salaries and much of the investment in Olympic infrastructure is not going to be available to the working class, middle class, at a time when basic public services such as clean water, good bus services, environmental pollution, significant shortages in affordable housing remain unaddressed. Bolsa Familia program of the socialist Workers Party helped the poor, yet the middle and working class have suffered with misspent funds, and mismanagement of the economy. Powell does well to show how things could be done better than they are now. He says he applauded the Bloomberg plan to build swimming pools and kayak routes in different parts of the city, in city parks further away where the middle and working class could use these facilities. This did not happen at the Rio Olympics. It also shows that the IOC could also get into this instead of being some distant organization, that simply hands out this gift called the Olympics and stringent requirements. What if the IOC also says it wants to see ways in which the facilities will be later available to the broad public, so that swimming pools and other athletic facilities, including housing and transportation systems are then available to the people in different parts of the city. Rio de Janeiro University has seen large cuts in pay and services. It took Montreal decades to pay for the Montreal Olympics. Sochi facilities will not be used for the large part by the Russian public, more painful because of the Russian deep recession similar to the Brazilian deep recession. Olympic host cities should be required by the IOC to show that the facilities built will be usable to the maximum degree by the broad mass of the public, finances are stress tested for recession in a country. At this time citizens of cities such as Boston and Oslo have taken up these things- as the IOC takes no responsibility and host governments are giddy about showing off their country- and pulled out. Least valid of all is the notion that the developing countries are being discriminated against. Look at all the empy stadiums in the far north of the country of Brazil in the World Cup, and you realize there are better ways to take pride in a country- how about matching your transportation infrastructure with that of China, some bullet trains, some new subways in large and midtier cities, done so as to give broad access to the public at affordable prices for transportation? India is a large and now forward looking developing country, a young population with tech and infrastructure dreams and 4 medals in all in the Olympics. Does it make more sense to match China's success in transportation infrastructure with bullet trains, new subways and road building programs, and to build athletic facilities in every high school and college in the country matching the U.S. and Britain,  especially for girls, or to seek pride in putting up an application for a gift from the IOC? ...

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Spain's banks have government debt holdings as a percentage of bank assets of 6.8% compared to 13.1% for Italy's banks. This is based on data available from the IMF. But Italian banks are far better capitalized than Spanish banks. Bank shares of Italy and Spain hit post Lehman lows in July 2011, but Italian bank shares are likely to recover faster than Spanish bank shares. Italian banks raised 8 billion euros of capital in 2011 and most banks have an average core Tier 1 ratio of over 8%. By contrast Spain's bank sector is perceived by markets as undercapitalized and the IPO's of savings banks Bankia and Banca Civica will be affected by the unsettled markets.

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Krugman points to the connection between the failure to achieve debt reduction through debt forgiveness and the sluggish economic growth in the eurozone and U.S., five years after the global banking and financial crisis of 2009 and four years after the beginning of the eurozone debt crisis in 2010. In the U.S. debt reduction for homeowners was delayed with a wave of foreclosures, and in Europe austerity budgets were the norm as Germany pushed hard for austerity policies. In 2014 small relaxation of austerity to give relief to voters took place in Greece, France, Italy and Spain, with austerity budgets still in place. Growth also slowed in Germany to slight contraction in the third quarter and no growth in the fourth quarter of 2014. This is leading to the formulation of new policy to address growth challenges in the eurozone. Debt to GDP is growing in eurozone countries and Britain because of lack of growth, even though spending cuts have been made, showing the need for rethinking policy. ...

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Florida's House of Representatives passed a bill in March that reduces the number of weeks of unemployment benefits from the standard 26 weeks to 20 weeks. A similar law was passed in Michigan recently. Both states have unemployment rates exceeding 10%.

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Gordon Brown, former prime minister of Britain from 2007 to 2010, chaired the April 2009 G-20 meeting that came up with ways to tackle the global financial crisis. Brown also led the way by recapitalizing British banks, a step the U.S. followed. He comments on the volatility in financial markets in August 2007 following the S&P credit downgrade of the U.S.. Brown gives an incomplete grade to the tasks the 2009 G-20 set out to accomplish. He points to three goals the G-20 had set in the middle of the financial crisis in April 2009. The first was to prevent a recession from becoming a depression. The other two were to establish a financial stability regime, and a compact for growth. These two became paper promises says Brown. Brown sees the best approach to prevent a lost decade is for U.S. and Europe trading their way out of a downturn as the Asian market absorbs more industrial goods from Europe and the U.S. This includes policies that would keep commodity prices low and ways of coping with currency shocks. Analysts have pointed to an export led recovery as one of the solutions the U.S. was hoping to achieve with a lower value of the dollar. This has had only limited success because of deep structural problems- high consumer indebtedness, bad debt at the banks, weak housing sector following the mortgage crisis, and a rising U.S. deficit- which will take some time to clear. Brown does not come to grips with these underlying imbalances built up during the boom years of the last decade, both in Britain and in the U.S., during which he was the finance minister of Britain....

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Mouhanad Khorchide, is professor of Islamic pedagogy at the University of Munster in Germany. He is offering an innovative approach to teach a gentler and more tolerant Islam as Germany shifts to the teaching of Islam in primary and secondary schools, alongside teaching of the Christian and Jewish faiths. He is the author of the book published in Arabic and as an e-book in English- "Islam in Mercy." He goes back to the open discourse in the Islam of the eight and ninth centuries for ideas, asking questions and seeing this as part of the discourse in the educational process. He is a Palestinian who studied sociology at the University of Vienna. Germany has 4 million Muslims.

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The recent appointment of fast food executive Andrew Puzder as Labor Secretary has caused great concern among union leaders. Puzder supports a $9 minimum wage compared to $15 supported by Democrats. Unions now represent 7% of the labor force, down from a high of 20% during Reagan's time when Reagan appointed a construction company executive as Labor Secretary and cut regulations.  Globalization has thinned the ranks of workers in unions. And the failure of Democratic administrations to stem the shift of factories overseas to China, Mexico and other places, as part of global supply chains focussed on cost, has weakened Democratic support among workers since the period of Bill Clinton. It eroded to the point where Obama won 65% of support among unions and Hillary Clinton won 56% in 2016. Interestingly the Republican Romney gained 33% versus 37% for Trump, showing voters were more inclined to move away from Democrats and only a smaller number willing to support Republicans, but the shift enough to give Republicans a win in 2016 for the presidency. The figures are from a Election Day survey of trade union AFL-CIO, and a larger proportion in midwestern states showed disaffection with policies from Clinton to Obama. In fact Obama spent years promoting another free trade agreement TPP that favored tech more than auto and older industries, just as Bill Clinton had promoted NAFTA, without giving thought to what this was doing to its worker base of support. A similar situation happened with Social Democrats in Germany as a SPD administration moved to the centre and handed Christian Democrats led by Merkel a win in parliamentary elections. As Democrats such as former Labor Secretary Reich, a professor at UC Berkeley who served under Bill Clinton, describe the problems of working class people their is less reflection on the impact of the changes from globalization and how Democrats handled or mishandled it, and more on the politics between the two parties.   ...

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Australia's minimum wage is set for 2015 at $16.87 Australian dollars per hour, or $13.55 U.S. dollars for people over the age of 20. This is 30% higher than the minimum wage of $10 in California, and almost double the federal minimum wage in the U.S. For years since the late 1990's it has been increased as Australia benefitted from a commodities boom. With the lower employment in the mining and other sectors in 2015, and a fading of the commodities boom, experts say the minimum wage needs to be restrained to reflect the changes in the economy. Unemployment at 4% in 2008, is now 6.1%. Unemployment for people 15-24 not attending school increased to 14.1% in Nov. 2014, declining to 13.1% in Dec. Workers under 21 are paid much less significantly lower on a sliding scale, an idea that could be borrowed in the U.S. as the minimum wage is raised higher to provide adequate income for workers with families to support. Experts point to high unemployment in the 1990's even when there was a low minimum wage. As a matter of fairness the wage setting body in Australia takes into account the median wage. It was 54% of the median wage in 2013, compared to 37% for the U.S., according to the OECD....