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How ethanol picture as a useful alternative fuel has changed completely in the past year. The economics of ethanol also have changed completedly in the past year, as corn prices have risen to above $3 abushel and stayed there, even with the biggest corn crop since 1945, and prices of ethanol have dropped with huge oversupply of ethanol from $5 a gallon in June 2006 to about $1.85 a gallon today. Global ethanol production has grown from 10.9 billion gallons in 2006 to 13.4 billion gallons in 2007 according to IEA. US's ethanol production is about half of this or 7 billion gallons and is up 80% in 2 years. The production capacity of ethanol with new plants is expected to jump to about 12 billion gallons in 2008 even as demand for ethanol is about 7 billion gallons.This huge oversupply accounts for the drop in prices of ethanol with margins dropping from $2.30 in 2006 to 25 cents in late 2007. Its become less and less attractive as an alternative fuel as more studies appear and more groups cite the different ways in which ethanol has destructive effects on the environment. Corn is in demand by food companies and by livestock companies in the USA and generally across the developing world so raising corn prices is seen very unfavorably around the world. Nation Academy of Sciences study and a National Research Council study says corn based ethanol could strain water supplies and impair water quality. American Lung Assocation worries about the the air pollution from burning ethanol in gasoline. And a EPA Spring 2007 report says ozone levels increase with increased use of ethanol. A study coauthored by Nobel prize winning chemist Paul Crutzen says it might exacerbate climate change because of the added fertilizer used to produce corn raised emissions of nitrous oxide. All this has made people wary of ethanol and much of the early enthusiasm for ethanol has vanished. The lobbying struggle pits the ethanol producers and the farm lobby in the midwest against oil companies which don't like being forced to use a non-petroleum fuel even with a subsidy of 54 cents of gallon for blending ethanol into gasoline, and food and livestock companies which need corn at lower prices. Add to this the weight of environmental organizations and countries across the developing world which simply don't like the idea of using scarce food resources in this manner and find this to be just not a right thing to do for the world's poor which need corn as a basic food source. Consider Mexico where this affects the price of a staple food corn tortillas and China which bans the use of corn for making biofuels, both countries seek to keep food prices low for the country's large numbers of rural and urban poor people and could see the stability of these countries disturbed by huge rise in food or fuel prices. As a result of all this the ethanol lobby is looking to Congress to mandate a certain usage figure of ethanol in gasoline production in the new energy law. This legislation now could become controversial in the future as better ways of solving the energy crisis such as automobile fuel efficiency reducing demand and conservation, as well as other alternative sources that have fewer adverse environmental impact come into play. ...

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Feldstein is back after his proposal that the government step in with low cost loans to families thatwould help homeowners reduce what they owed the bank by 20%, for those homeowners who are close to negative equity but not there yet. This is needed to prevent the next big wave of defaults on loans, from homeowners who see that walking away from their loans is a rational solution once they reach the point of negative equity. Feldstein hammers away at some critical points that point out that reducing rates risks more than it accomplishes. Food prices globally do not benefit from lower rates, as governments may have to raise interest rates to cool inflation in their economies. Rising food prices threatens the livelihoods of poor and working classes in the global economy, especially in developing countries of Asia and Africa. It also does little to stimulate the economy in the USA and actually helps increase inflation for commodities like oil and food products. So why is the Fed lowering rates even though the costs are more significant than the benefits. Lowering rates would be counterintuiive in this situation as Feldstein points out. Bernanke's response would be that its a temporary crisis response, lower interest rates helps financial firms restructure their debt and helps them restore health to their balance sheets in the fragile financial markets, where the financial architecture itself is being questioned. And the immediate crisis was in the financial markets, whereas some other solutions could be found for the damage this caused to the overall world economy in terms of inflation. Feldstein quotes estimates of inlation at 4% in the last 12 months and of 4.8% this year. The inflation rate in China is estimated much higher at about 8.5% and has become the focus of government efforts including relaxing the exchange rate, as the rise in prices especially of food affects the large working poor in China. Another aspect of lower interest rates is that lower rates surely would do little when there is such a large inventory of unsold homes. Significant also is the fact that lowering rates for fed funds by 3% from this time last year, has done little to lower mortgage interest rates which have come down only by 0.5%. So it does not give much relief to homeowners either. So is lowering rates a medicine that comes with a lot of side effects that you adminster only because the patient is in a critical condition, as the financial and credit markets appeared to Bernanke and Paulson that weekend only a few weeks ago? Probably so,which takes one back to Feldstein's main point. That main point is that the only way to get to solutions that strike at the core of this crisis is to help homeowners avoid default on their home mortgage loans, by reducing the loan amount by something like 20%, through government loans which can later be recouped to some extent. It cautions the Fed to use the medicine of lower rates sparingly, and urges the market participants and the public that insists that there be no "bailouts" to come to their senses, and accept that their will be tolerable losses for all if there are not to be intolerable losses for all....

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Oil supplies are not expected to go up with Mexicio and Russia's aging fields crimping production, non opec production barely budging with 1% increase this year according to IEA. Indonesia production down by half from its peak. Countries in the middle east like Iran are consuming more and have less available for export. And the Saudis plan to build huge chemical aluminium and other plants as well as cities in the desert, and increase electricity production. This will take up some of the oil production and make less available for export. Militant strikes have shut down over 25% of production of Nigeria's 2.5 million barrels a day of production repeatedly in the last few years. And Saudi Arabia has according to CERA only 2 million barrels a day of spare capacity or 2.3% that it can add, all of the safety cushion in one country according to Daniel Yergin. Yergin sees prices up to $150 barrel based on the supply constraints. The demand side is showing declining consumption in the USA but not by enough to compensate for growing consumption in China by 5% this year, and the increase in consumption in India, Russia, Brazil and other developing countries including Middle East. The reason for continuing consumption increases in the rest of the world is that price impact has been less severe in Europe because of the strong euro and oil priced in US dollars, and in China because Petrochina is required to put price caps so gasoline price increases are not that harsh. And India also cushions the price impact to some extent to protect consumers. And autos are just taking off in large numbers in China, Russia, India, Brazil and other countries. The drop in consumption in the USA has to be large enough to have an impact. And the shift to fuel efficient targets in the new fuel efficiency regulations in the USA are too modest and over a number of years to have any impact in the short term or in the next 1-3 years. In February US oil demand dropped to 19.7 million barrels a day, down 1 million barrels a day from the US average for 2007, but this insufficient conservation to impact price. Even though new cars are shifting to higher fuel efficient small cars the impact on the total fleet is gradual as cars on the road purchased in the last 5-10 years are still on the road. Even as the consumption falls in the US the offset is occurring in the other countries like China, Russia and India. Some of this is due to the euro and some to speculation but the supply constraints are real and demand momentum is still there in China, Middle east, Russia and India to keep offsetting savings elsewhere and keeping supplies tight. The euro increased in value by 2% while oil prices increased by 10% since the 1st week of April so there is more than the weakening dollar and some speculation to this surge, which may be why the normally cautious Yergin says the price rise to $150 is realistic and says, its not just that the genie is out of the bottle, a hundred genies are out of the bottle. That is to say for the immediate future of demand momentum and supply sluggishness which could run 6-24 months, to the Olympics and maybe a year or so from then. This ties in with the thinking behind the Goldman's estimate and CERA's estimate. ...

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After the huge crisis the debate about capitalism. What went wrong, and importantly what did not go wrong. Not in the sense of more punditry to place the blame but to ask questions to have a better grasp of the fact and better understanding of the twists and turns of the last decade, the complexities, the frailties, the errors of judgement, and the failings, and the outright falsehoods and ethical breaks. So that the good things are not lost for instance the individual initiative and the bad things are corrected and measures put in place to prevent recurrence and minimize damage. Has the model of anglo-saxon capitalism failed? Actually some specific things failed, deregulation at a time when banks and markets were behaving irresponsibly and without any restraint internal or external, credit ratings agencies failed, financial institutions failed in performing their first line of business which is to finance investment in the economy not in housing and mortgages, and American consumerism failed in that value of saving disappeared and abundance of debt brought American savings to zero, leaving little for investment in the economy and infrastructure except by borrowing from other countries. And living on illusions and not on sound basics the leadership failed thinking that free enterprise and technology and productivity improvements somehow allowed a country or group of countries to live way beyond their means, and a tendency to excess in the popular mood of the country, excesssive consumption, excessive and profligate use of energy which sent trillions of dollars overseas over decades, and excessive expectations of the lower classes for housing and goods beyond their means, all played a part. What did not fail is the freedom to trade, the fall of "barriers to intercourse" between nations, that produced gains on a big scale so that computer and cell phone technology developed in one part of the world quickly spread around the world and the innovations and technology developed in one country spread producing benefits all over the world. It created amood of optimism in developing countries whose incomes rose especially where countries encouraged growth as in China, India, Russia, Brazil, Eastern Europe and pulled hundreds of millons out of poverty. With China, America and Germany in effect shipped technology goods in return for lower value added goods like textiles and shoes, to help China industrialize, and American consumption played a useful part until things reached an extreme and the system was abused by forgetting the basics and allowing excesses and failing to respect ethical responsibilities. Regarding regulation excessive regulation and red tape has proved to be bad as in the license Raj in India which stifled private initiative and new enterprise till it was abandoned in 1990, and no one in India is calling for more regulation. What is bad is to abandon good common sense and to rely on the illusion that no regulation is needed to run a complex financial system like we have today, a laissez fairre libertarian philosophy that was rampant in the Bush administration and in the country's leadership in the Bush years. As a result an underfunded SEC failed to deliver on its basic mission and responsibility, and the lack of a centralized regulatory authority with powers and funding to meet the challenges of modern finance as for instance ineffective derivative regulation under the CFTC, simply aggravated things further. ...

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The political warfare between the two parties Republicans and Democrats complicates help to the automakers being released from the TARP $700 billion by Bush in the months before January transfer to the President elect. Bush is purported to want the Democrats to support the Columbia trade agreement which Obama vigorously opposes on the grounds of violence against union workers in Columbia. Complicating the situation further Obama and environmentalists including Al Gore wnat to see the auto industry help in the light of promoting energy conservation and environmental goals, whereas the industry and the unions and their Michigan supporters like Rep. Dingell and others want to see the aid given without any strings attached. This leaves the danger that both sides may be caught in a situation they could not control, the Bush people with a outgoing President who is struggling to preserve something of his legacy amid dismal ratings, and the Obama people without the experience to handle a situation such as this which is getting increasingly complicated. See the editorial pages of the WSJ on November 10 which said government help should only be given if the current management and board are replaced with new management and board, suggesting government receivership for GM. The management and board of GM which have hung onto their jobs through thick and thin are not likely to volunteer for a change. And the public perception is that the automakers management is responsible for this mess having dragged their feet all the way and used lobbyists to delay having to make the fuel efficient automobiles customers want. And another intractable factor that remains in the background is the collapsing sales of automakers which if it continues would require even bigger amount of government aid to keep operations running and pay workers way beyond the $50 billion that is being discussed, almost unrestricted help. In the meantime the Center for Automotive Research athink tank based in Michigan says about 3 million jobs depend directly of indirectly on the automotive industry and suppliers and services and goods providers to autoworkers. At the rate things are going a further deterioration in the conditions of the industry and further sales losses look likely, and GM's share price has already been placed at zero value by auto analysts at Deutsche Bank. It may well turn out that no one is in control and as the situation lurches from crisis to crisis, both the outgoing and incoming administration might find events happening in rapid fire mode one after another may take GM' s share price down close to zero before any solutions are found to an impasse and action taken. This happened with Lehman Brothers where in the end the failure of Fuld to take decisive and correct action early led to a collapse which the Fed and Treasury let happen. The danger to the economy is that when the story of these events is written years hence it may be recorded that very liitle action was taken to prevent foreclosures and action taken was not taken early or decisively. And individuals like Fuld at Lehman in October and Waggoner at GM in November failed to provide the leadership in the months and years leading into the crisis, leading to its steep and worsening nature on the credit front and on the auto front. ...

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Key donors to the Republican Party, the billionaires Charles and David Koch,  say they will conduct a grass roots campaign against the Trump administration's use of tariffs. Charles Koch is 82, and David Koch is 78 years old. The Koch brothers groups launching the campaign are - Freedom Partners Chamber of Commerce, Americans for Prosperity, and the LIBRE Initiative. David Koch ran in 1980 as vice presidential candidate for the Libertarian Party. Both brothers are free trade advocates.

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S. Koreans do not like the Wal-Mart style large warehouse type of retail stores as a place to shop in. What they want is the Korean outdoor market comfortably tucked inside. A better comparison to Korea's own E-Mart owned by Shinsegae is Target stores in the U.S., where there is a a nicer spacious layout, lower shelves. Then you have to add the feeling of a Korean outdoor market with vendors in the form of girls with polo shirts showing the brands they represent calling out to customers, above the sound of butchers calling out prices of meat and fish. A senior executive at Shinsaegae's E-Mart says S. Koreans hate the warehouse format. As a result Wal-Mart and Carrefour had to withdraw from the Korean market. E-Mart's founder, Lee Myung Hee, is the daughter of the Samsung Group's founder Le Byung-chul. The company is now run by her son, Mr. Chung, who is combining professional mangement with ownership management to run E-Mart. The original E-Mart was a small operation acquired by the Samsung founder in 1963, and separated from Samsung under Ms. Lee in 1991. The first E-Mart opened in 1993. In 1999 Samsung took a 11% interest in Samsung-Tesco discount chain retail stores, a joint venture with Tesco Corp. of the UK. Shinsaegae expanded quickly after the 1998 Korean financial crisis, by acquiring land at attractive prices. With the failure of the Wal-Mart stores in S. Korea, Shinsaegae acquired the Wal-Mart operation for $872 million in 2008. ...

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Zaraska says a vegetarian diet or one that includes vegetarian diet in meals is a good idea to reduce the risk of heart disease, obesity, diabetes and other medical problems. Be sure to add zinc, iron and calcium, Vitamin B12 to the diet if you are older she points out, to compensate for the change. About 2.5 million Americans over the age of 55 are vegetarian according to a 2012 Harris poll done for the Vegetarian Resource Group. There is a common perception of vegetarianism as purely vegetable type foods. However vegetarianism in India is practiced with the inclusion of all dairy products- milk, yogurt, and buttermilk. Not only are they included, they play a significant role in the diet. Also included and playing a large role in the diet are lentils and beans which provide a significant source of protein. When the idea of vegetarianism is broadened to a more normal vegetarianism as practiced in countries like India and includes dairy, lentils and beans, the diet is able to provide most of the nutrients needed. By including this kind of vegetarian food as an integral part of the diet and reducing meat is another way the health needs of Americans facing a high rate of obesity and other medical problems can be met. If insurance companies were to give incentives for increased consumption of these vegetarian foods and lowered consumption of meat, and the public was made aware of its benefits through advertising, the cost of health care in the U.S. could be brought down....

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The IMF in its 2012-2013 Global Economic Outlook Report presented at its annual meeting in October 2012 estimates global economic growth of 3.3% in 2012 and 3.6% in 2013. This is a drop of 0.2% for 2012 and 0.3% for 2013 from its earlier forecast in July 2012. Under the IMF definition the global economy GDP does not have to decline for a recession. Advanced economies growth estimate is 1.3% in 2012 and 1.5% in 2013. Emerging market economies growth estimate is of 5.3% in 2012 and improving to 5.6% in 2013. Specifically for the eurozone growth estimate is decline of 0.4% in 2012 and 0.2% growth in 2013. U.S. growth is estimated at 2.2% for 2012. China's growth rate is estimated at 7.8% in 2012 with a growth uptick to 8.2% in 2013 as a much smaller stimulus than the one in 2009 kicks in. This will help commodity exporters like Brazil, Australia, and Canada. Two surprises are Brazil's growth with a significant improvement to 4% in 2013 from 1.5% in 2012 because of sharp interest rate cuts and improving demand from China. The other is India which is expected to show a significant slowdown with a growth estimate of 4.9% as the government faces what the Kelkar committee report calls "a perfect storm" of a large current account deficit and a budget deficit, and failure to attract foreign investment. Growth in Japan is expected to slow to 1.2% in 2013 from 2.2% in 2012 as the government imposes a sales tax increase to reduce its deficit. ...

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Karen Elliott House, a former publisher of the Wall Street Journal, who won a Pulitzer prize for reporting on the Middle East, is now researching Saudi society. She now writes this scathing report from Saudi Arabia. She says that just as in Egypt, an old corrupt leadership continues in power for several decades, an old corrupt leadership in the form of 7000 princes in a vast royal family. King Abdullah is in his eighties and the ruling princes have an average age of 83, and have illnesses for which they are under medical treatment. They continue to lead a nation where 60% of the people are young people under the age of 18! Itself an astounding fact. Karen House points out that the internet and social media have also made the young very knowledgeable about the conditions in the country- where 40% of Saudis live in poverty and 70% cannot afford a home. Bad managemet by the princes has affected basic services including the sewage and drainage problems in Jeddah after the floods. It is astounding that far less wealthy Gulf sheikdoms are doing a better job of providing education, jobs and health care. Thirty years of visiting Saudi Arabia, and the last four years of intensive reporting, has persuaded Karen House that this situation is at an impasse that might end up resolving itself through some sort of upheaval. To Karen House this looks like the last days of the aging leadership under Brezhnev before the Soviet Union collapsed....

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Th Obama administration's Home Affordable Modification Program, or HAMP, is designed to provide relief to homeowners facing foreclosure. HAMP has also prevented these homes -from the seven million home loans that are delinquent -from joining the overall inventory of homes, and depressing home prices further. Eighteen months after HAMP was introduced, it looks like HAMP has failed to help homeowners to the extent needed to revive housing. Of the 1.3 million modifications extended to homeowners, about half have been cancelled, and about one third or 422,000 homeowners have received permanent loan modifications. The results for July 2010 show that it is slowing down even more. The number of homeowners receiving modifications in July is growing at a much slower rate. 17,000 new trial modifications were started in July, 2010, but 5 times that number of loan modifications were cancelled. HAMP has reduced the montly payment through a lower interest rate and longer term, with the average borrower receiving a montly modification of $500. But even with lower payments and permanent modifications homeowners still have lots of debt. The median rato of total debt payments to pretax income is around 63.5%. And analysts estimate that 20% of borrowers with permanent modifications will re-default. The program had aroused huge expectations, hoping to help 3 million homeowners. Which is why Professor Kenneth Rosen, of the University of California, Berkeley, considers the results embarrassing for the Obama administration. Adding that the Obama administration should be ashamed of these results after all the hopes that were aroused for real help to homeowners. ...

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Putin reminds Russians of the precarious nature of all that has been achieved in Russia, as he seeks support from areas outside Moscow. He wrote in an opinion article in February: "Under the flag of democracy, in the 1990's we received not a modern government, but an opaque fight among clans and numerous semifeudal fiefdoms... We received not a new quality of life, but huge social costs; not a just and free society, but the highhandedness of a self-appointed elite, who openly neglected the interests of simple people." Emphasizing the tenuous and uncertain nature of the recent prosperity, Putin said in a televised appearance: "It is enough to take two or three incorrect steps and all that came before could overcome us before we know it." Schwiritz visits the town of Lyubertsy outside Moscow and hears from ordinary people who remember the privation and dark times of the 1990's, who realize that their lives can be much better, but also see the vast improvement in living conditions. There is a real and tangible fear that all this could be lost or eroded. It also shows that as Moscow and St Petersburg have grown and flourished in the last decade with a strong middle class, there is a great deal of uncertainty felt by ordinary people in smaller towns and cities. As for that period in the 1990's, even young activists like Navalny, say a lot was done in the early years of the Putin-Medvedev government, when even Russian mortality rates were falling with a general sense of despair. ...

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Arguments that are expected to be used by both sides before the U.S. Supreme Court on the health care law. At the heart of this is the 1942 decision, Wickard v. Filburn, on the limits of federal power. Mr. Filburn, was an Ohio farmer who questioned a 1938 federal law that imposed a penalty on every extra bushel of wheat on his farm beyond the stipulated amount. The decision was unanimous and went against Filburn. At issue is whether the federal government can impose a penalty on individuals for not buying health insurance. Justice Robert Jackson wrote in that case: "Even if appellee's activity be local, and though it may not be regarded as commerce, it may still, whatever its nature, be reached by Congress, if it exerts a substantial economic effect on commerce." The Obama administration's argument in its brief is that the decision of individuals not to buy insurance, like that of Filburn to plant that extra bushel, has larger effects beyond the local one and serious consequences for the whole country- it raises insurance rates of people in states across the country and makes hospitals bear the burden of caring for these uninsured people. For over 50 years the Supreme Court has largely supported the idea behind the Filburn decision, except in 1995 and 2000- these two decision invalidated laws made about guns near schools and violence against women. The Court ruled that the activities were local and noncommercial and beyond the federal power to regulate interstate commerce....

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Following concerns about cybersecurity China is pursuing the development of its own chipmaking capacity. Tsinghua Ungroup has the support of Chinese officials. It emerged as China's largest chipmaker with the acqusition of two large mobile chip firms in China- Spreadtrum Communications and RDA Microelectronics in 2013. Intel took a 20% stake in Tsinghua Unigroup for $1.5 billion as a way to enter the market serving the low end smartphone market with chips. Taiwan's Mediatek Inc. is its largest competitor. China's technology in mobile chips is still 2-3 years behind the latest technology, according to research firm Canalys, and serves mostly the low end smartphone market for emerging markets.Tsinghua Unigroup CEO, Zhao Weiguo, says that by investing in the long term like Huawei, his firm can catchup with larger companies in the field. China plans to use its chip fund to invest $1.6 billion in the company over the next 5 years. The company was started in 1988 at elite Tsinghua University, is still controlled by a university holding company, and has close ties with the government through its alumni network. Xi Jinping and other leaders graduated from the university. It is considering an acquisition of HP's H3C. H3C is a joint venture of 3Com and Huawei supplying corporate data networking gear in China, now part of HP. Tsinghua Unigroup is in its early stage of development as its estimated sales of $1.8 billion for 2015, make up a small part of the $340 billion global chip market, according to Gartner Research....

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Hilsenrath points out that Japan's central bank, the Bank of Japan's holdings of securities and loans has increased by 35% in 2008-2013 compared to an increase of 2, 3 and 5 times respectively in the assets of the ECB, the U.S. Federal Reserve and the Bank of England. Experts in Japan say what was considered commonsense by Bank of Japan chief Shirakawa and others, that aggressive monetary policy doesnt work, is considered nonsense in other parts of the world. They say aggressive monetary policy was never tried and Shirakawa diluted its impact by saying he did not think it would make much of a difference. Communicating the right message to financial markets was part of the approach taken by Draghi at the ECB, Bernanke at the U.S. Fed and King at the Bank of England. Anil Kashyap of the University of Chicago agrees. He says the Bank of Japan missed its inflation target for 15 years. BOJ also bought shorter term bonds in its bond buying efforts, with maturities of three years compared to the average maturity of nine years for bonds being purchased by the U.S. Fed. This reduces the effect. The Abe administration is careful to present the approach as similiar to that in other countries, and intended to spur growth in Japan, which in turn should spur global growth. U.S. Fed chairman Bernanke has supported this effort. Prime minister Abe was on a visit to the U.S. communicating Japan's approach and winning support, something never done before....

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"Empathy" was a word not used by Obama but was an idea that was persistent in his selection. From the East Room Obama told the American public- "experience being tested by obstacles and barriers, by hardhip and misfortune; experience insisting, perisisting and ultimately overcoming those barriers; is necessary ingredient in the kind of justice we need on the Supreme Court." Sotomayor responded- "This wealth of experiences, personal and professional, have helped meappreciate the variety of perspectivs that present themselves in every case that I hear." While empathy and astory line similar to the President's is clear in this case; for a Latina whose mother struggled like Obama's to get her through school, and who did well at Princeton and Yale Law School; there is also the same degree of excellence in rigorous study of the law and sharp intellect, and good judgement. This was Obama's first criteria before empathy. And even though Justice Roberts is quoted here as saying in his confirmation hearings that he saw the role of a judge as an umpire, calling balls and strikes, Roberts is still going to see the balls and the strikes through his own set of experiences. Which in this case he generalizes without knowing it or consciously realizing it, as the set of experiences common to all. His is an aspiration to impartiality no more than Sotomayor's, except that Sotomayor is conscious of her experiences, because she has as she says spent a large part of her life looking over her shoulder as an outsider Newyorkican does; and Roberts the insider isn't. ...

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To give time for the fragile banking system to adjust, and for consumers not to feel the impact of a sharp and sudden devaluation, the government of Russia has used up one third of its reserves shoring up the ruble. Now with currency traders and others testing the limits of the new band in which the ruble is trading, a lower limit of 41 rubles against a basket of euros and dollars is eroding. Last week the rate was at a low of 36 rubles to a dollar. Foreign exchange reserves have dropped from a high of $600 billion to $385 billion. See the link to the sudden erosion of sovereign wealth funds around the world including the Gulf countries. Raising rates aggressively and tightening liquidity too much would hurt the economy, so there is a testing game between currency dealers hoping to profit from the ruble's fall and the Russian government and central bank. Memories of the 1998 collapse of the ruble are still fresh in people's minds, and the government wants to prevent anything like that happening. This has almost become a raison de etre of the Putin government, to prevent the poverty and humiliation after the collapse of the economy during that early post-Soviet period. Most of the money that the government is spending to boost the banking system and the economy is flowing into the currency market instead. Says an economist at Alfa Bank in Moscow, all the rubles out there have been converted into dollars....

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Hubbard at Columbia, Scott at Harvard, and Zingales at University of Chicago, go over the options. Bad bank option has the drawback that you have assets that are written down and you put them in a bad bank, but what about all those assets that deteriorate as the economy deteriorates, would'nt they have to be be put in the bad bank too? Banks hold $6 trillion of mortgages and mortgage securities, with mortgage securities of $1.3 trillion. Option two, guaranteeing bad assets has been tried for Citigroup, where taking asset pool of $306 billion which was created, Citigroup absorbed the first $29 billion losses, Treasury and FDIC jointly fund next $15 billion, and Fed holds 90% of remaining losses. The government getting $7 billion in preferred stock with 8% yield. This Citigroup option according to a conservative estimate would cost the government $60 billion after stock warrants received. This would cost for all the banks something like the $700 billion of the TARP, and if bad assets deteriorate further as is likely, could end up costing the government trillions. So this isnt a great option. Hubbard, Scott, and Zogales, say that the option of encouraging banks to spin off toxic assets into separate affiliated bad banks would be a reasonable one. But the government should't guarantee the assets of that bad bank if it poses systemic risk. And banks with negative capital or close to negative capital should be taken over by the government, nationalized, through already established FDIC procedures, such as bridge loans. ...

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Willingness to change opinions as the wind shifts, or as conditions change and new information or insights are gained, is a necessary quality in good leadership. You may not get it right the first time, and that is OK if you are honest with yourself and do the right thing, which is to take stock of the new information and understanding and act upon it, even if that is different from what you said or did before. These skills may be needed by the President in difficult places like Afghanistan and Pakistan, as well as at home in tackling the economy where some actions work and make sense and some others don not work or make sense under the conditions. Or its some new understanding of the conditions that is gained. FDR tried a number of things in his first 100 days in office and he got conflicting advice from some advisors, over time he obtained a better grasp of conditions and an understanding of what actions would be most effective in ending the crisis in the country. He had to be a good learner, be a good observer first hand of conditions, stay in touch with the people, honestly ask himself what would be the best thing to do in each situation. Sometimes he had to chart a new course and he had to know which advisers best represented the interests of the people and the country, and where to look for help. This is described by Adam Cohen of the NYT in his new book "Nothing to Fear". ...

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Is Summers too confident that things will return to the way things were, so that eventually jobs losses will dissipate, and the business cycle will return, so that preventing the economy from becoming bubble dependent for growth is the serious concern. How long will these job losses like the one in March of 663,000 last, WSJ reporter Wessel asks Summers. His response is essentially no one can forecast this. But he thinks these losses will dissipate, because production is running well below capacity, and eventually inventories will fall to the point at which they will need to be replenished. But what is cause for concern is the example he gives. He says next, that in the auto industry sales have normally run at 14 million, now they are down to 9 million. As they return back up to that level or a similiar level he says, and similiarly for other industries with underutilized capacity, the economic cycle will kick in. This depends on what is happening in the market . It is worth asking are there deeper and lasting changes ocurring in the American automobile market that Summers may be missing? See the links for Japan car market, and German car market for information on the changes that ocurred in these highly developed markets. Is a fundamental change ocurring in the American car market which this crisis brings to the forefront, that leads to a long term change to a smaller market closer to what sales are now? Is Summers too sanguine and complacent or is he simply hoping for the best. ...

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The Economist cautions that recovery is nowhere in sight, the hope points to only amoderating of the steep downturn. The 20% rise in the stock market for two thirds of the 42 stock markets that the Economist tracks in the past 6 weeks, can easily fizzle out as has happened before. Between 1929 and 1932 the Dow Jones Industrial Average went up more than 20% four times only to fall back to previous lows, and this crisis has seen 5 separate rallies of more than 10% only to fall back. But toxix assets have not been cleared up at Us and European banks, And consumption in the US, Germany, Japan and China shows no signs of coming back for years especially in the US where saving is increasing. And European banks have about $1 trillion in losses in central and Eastern Europe that have not been recognized, and the slide in the British and Spanish economies proceeds. And developing cpuntries have $1.8 trillion worth of borrowing to roll over this year, with less access to foreign investment. At one point the emerging countries imported capital worth 5% of their GDP, now cautious investors will keep that money at home. In America rising foreclosures and rising unemployment, combined with lower consumption, will keep economic growth down for years. Rising debt will limit future fiscal stimulus in countries like Japan and the US. Chinese growth will be constrained by its overdependence on infrastructure spending and lack of serious changes to its healthcare system which makes consumers save more for medical crises....

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As airlines charge for food they are getting more feedback from customers and they are collecting this feedback to learn what customers want and what kinds of food to carry. Delta and Midwest and US Airways are lloking at different food options that are healthier and liked by customers. Delta and Midwest have hired Chefs from restaurants to come up with better nutritional and flavorful dishes that will appeal to customers. Customers who take longer flights or who change planes with very little time to get food in the stopover time are dependent on getting something good from the airline food or staying hungry. These travellers are willing to pay more for better food. The whole shift to having customers pay for food may result in better food choice and menus which are healthier and flavorful. Certain kinds of foods don not hold up in an airplane environment and chefs are experimenting with menus and choices that will be best suited for this. One traveller faulted American for serving a huge cookie thats like a half pound size. It shows how little thinking goes on in airline offices about the food thats served. Already US airlines are falling behind in getting newer planes and some airlines are usoing really old planes that aren't fun to travel in now add the discomfort from badly thought out or not thought out at all food and imagine the onboard experience. see th link to how US airlines are falling behind in getting new planes and the links to all the flight delay especially into New York....