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Jeremy Corbyn is elected by a landslide in a vote of party members to the leadership of Britain's Labor Party. Like Bernie Sanders in the U.S. Corbyn started out as a fringe candidate, but his campaign gained momentum as he barnstormed the country this summer and was able to draw large enthusiastic crowds. Corbyn has represented the Islington North constituency of London in Britain's parliament since 1983. Corbyn opposes the austerity policies of the Conservative Cameron government and military adventurism. He proposes what he calls "a people's quantitative easing" which would finance new investments in infrastructure, large scale housing, energy, transport and digital projects. He has apologized to students about the restoration of fees for education and loans replacing grants in universities, and would scrap tution fees, restore student maintenance grants, introduce universal childcare, support adult learning.The Bank of England would print money to support a national investment bank to provide the funding. Other funding would come from reducing corporate tax loopholes, and cutting into 20 billion British pounds of tax avoidance and 80 billion pounds in tax evasion. He favors immigration, and staying in the EU, opposes NATO membership on grounds that it has expanded too far to the borders of Russia....

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The view from Asian officials and scholars that it was not the savings glut that originated in Asia that caused the economic crisis in the U.S. The idea of a"savings glut" that caused low rates for along time and set up conditions for a housing bubble was presented by Ben Bernanke in 2005 before he was governor of the Fed. It was considered acontributing factor in the crisis. Mr Panitchpakdi, head of the UN Confreence on Trade and Development says that Asians did not borrow heavily for consumption and Americans did. Consumption levels he says are normal in Asia and average 40% of GDP. Household consumption in China is 36% but thats because growth in investment and exports has been very strong, npot because consumption has been weak. Speaking at the same conference Chinese central bank governor Zhou Xiaochuan sais Chinese consumption needs to rise and saving rate fall but micro factors like regulation played an overwhelming part. Zhou says the increase in the savings rate in recent years comes not from households but from corporate savings as retained profits. Lawrence Lau, another economist, says China's trade surplus was at 2% for many years till 2005 when it jumped to 5% of GDP. ...

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JP Morgan Chase bank's tentative deal with the U.S. Justice Department includes agreement that the bank will not face penalties for the problems at Washington Mutual and Bear Stearns, financial companies acquired during the 2008-2009 financial crisis. The failing firms were acquired at the urging of federal regulators and management at JP Morgan sees holding the bank responsible for the culture and behaviour of management at Washington Mutual and Bear Stearns as not a fair response of regulators. What the deal does do is include provisions for covering losses of investors. Of the $13 billion legal settlement JP Morgan will provide about $3 billion for institutional investor losses on mortgage bonds issued by JP Morgan, Washington Mutual and Bear Stearns. $4 billion goes to the Federal Housing Finance Agency, for misleading the regulator about quality of mortgages sold to Fannie Mae and Freddie Mac. Another $4 billion goes to homeowners for losses suffered. $2 billion relates to penalties for JP Morgan's own behaviour during the years leading to the financial crisis. Attorney General Eric Holder and the Justie Department see the settlement with JP Morgan Chase as a template for action against other banks for behaviour leading to large investor and homeowner losses following the 2008 mortgage financial crisis....

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Issues raised by the huge mismatch between revenues and investment for AI. $400 billion estimated investment by 5 Tech firms in 2025 alone with revenue of about $40 billion and huge uncertainty about when AI will produce returns. Articles seen this week of November 17 in the WSJ and NYT on this issue, podcasts, discussions in other media outlets. Could this lead to a dot com bubble type economic crisis? Could that lead to a recession? Alongside these articles another article in the WSJ on Nov 17 shows the benefits small firms get by using AI, benefits which are on the fringes of their business, not essential but with some experimenting firm owners/managers able to tweak AI information for use in business. Nothing significant which firms will pay much money for. The uncertainty is a major factor. Should geopolitics trump all these concerns? Is the competition with China require this scale of investment, and is China following a more utilitarian approach as reported in a WSJ article this month, of investing in AI in a utilitarian way targeting its use in improving manufacturing, improving infrastructure, and not wildly throwing money at experimental uses that are unlikely to yield much result. In geopolitical sense would the country that not only promoted AI but used it efficiently and cost effectively, used it in ways that promote the overall public good, get the WIN. In short it behooves everyone of us to ask hard questions of AI, to dehype the hype, to look for the public good that comes out of this from it's efficient use. To ask the tough questions when $400 billion generates only $40 billion in 2025 and the $3 trillion planned investment over 5 years is half unfunded, is it going to crowd out energy needs for homes and business, push renewable energy targets back, crowd out essential investments in the crumbling aging infrastructure of the US and Europe, crowd out essential investments in education, healthcare, pharmaceuticals, and manufacturing, that hold better promise for our People. Will it also put retirees at risk when corporate bonds from retirees money fund the unfunded portion of AI? This means making the political dimension not about migration, settling the illegal migration issue that was meant to be settled a long time back, or about cultural issues that have little day to day impact on our lives which are about groceries, childcare, housing that are non ideological. Making the political dimension not about remote countries that one knows little about except when it affects public safety and health as with fentanyl. Capital allocation decisions to the vital needs of America can then be free of politically induced error, so that it can be subjected to the test of how best it serves the public interest and the people of the Nation. ...

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In a time of relative prosperity in the first months after the boom years uptil 2007, in April 2008 to be specific, it is strange but true that food crisis is overshadowing the credit and housing crisis in the USA. At the G7 meeting, World Bank president, Zoellick, made a passionate statement about the crisis that is developing across Asia and developing countries elsewhere as food prices go through the roof. The World Bank and the IMF are stepping in, but the focus at the G7 meeting was on the US dollar and the world financial system. There have been serious problems about food shortages in Philippines, Indonesia, Haiti and Egypt, and even in other countries like China and India the increase in the price of rice by 146% makes for a serious food crisis. See the link to this.

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This report shows an alarming trend in China which is fueling a real estate bubble similar to the one that Japan, and more recently the U.S., experienced. State owned companies are actively speculating in real estate, and are buying real estate from local governments eager to profit from the real estate boom. Local governments obtain land and build infrastructure on it to raise the price that they can get for it in an auction. In many cases one state owned company outbids another state owned company from different sectors such as oil, chemical, military, telecom and highway. Land records reveal that 82% of land auctions in Beijing in 2010 were won by state-owned companies up from 59% in 2008. The National Bureau of Economic Research in Cambridge, Massachusetts, has estimated that land prices leaped by 750% from 2003, with half of this happening in 2008-2010. In many cities housing prices have doubled in the last 2 years. The National Bureau estimates that on average these state owned companies paid 27% more for the same piece of land than other bidders. China's $586 billion stimulus and its aggressive lending program by state owned banks may have helped in other ways after the 2008 economic crisis, but in this area it has fueled a real estate speculation boom, with the local government and state owned companies being the key participants in this speculation. Local governments earned an estimated $230 billion in land auctions in 2009. The demolition of older neighborhoods and poorly compensating residents are all part of the effort by local governments to profit from this speculative boom. The implications for the banks are serious. Local governments use other companies created for the purpose to engage in this investment in land. And off-balance sheet accounts create the danger that China's state owned banks may have enormous amounts of debt that is not showing up in the regular accounting. Analysts say that the $1.4 trillion in loans made by state banks in 2009 was twice that in 2008, and a large portion of this was diverted into real estate speculation with records set in land bids and booming prices. All this is happening as China's Ginni coefficient has deteriorated rapidly. And the simple fact remains that even as apartment prices exceeded $200,000 in Shanghai, the average disposable income is about $4000 per year. Prof. Shih of Northwesten University has followed the investment companies of the local governments closely and comes to similar conclusions about the size and implications of this real estate bubble in progress. Shih estimates LIC (local investment companies) debt owed to banks at $1.68 trillion or 34% of China's GDP. See the link to BW's Dexter Roberts. ...

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Buyers and sellers are living in two different worlds. Sellers living in the past hoping to get a solid deal on their home, and buyers looking into the future and seeing prices declining further, making it difficult to bring them together. This only worsens the difficulties in the housing market. This reporter looks at housing sales and prices in the Washington D.C. area, and sees very cautious buyers.

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Bernanke's speech at the annual Fed Jackson Hole meeting put any future policy action off for the September meeting of the Fed's Open Market Committee, which will meet for 2 days to allow lengthy discussion of issues. He repeated his focus made in earlier statements that other actions are needed to reduce the headwinds facing the U.S., actions other than the Fed's monetary policy. He called for "good, proactive housing policy," which has been a major missing piece in the jigsaw puzzle of the American economy. Specifically, "families with mortgage debt bigger than the value of their homes facing unusual financial hardship which is also hurting the banks." Martin Feldstein and other experts have repeatedly called for action to help homeowners under water since the mortgage financial crisis hit in 2008. And the government's response has been tepid at best. Most evaluations of the Home Affordable Modification program and other programs to help prevent foreclosures consider them a serious failure of the Obama administration. Higher unemployment has only increased the urgency for government action in this area and good proposals were made by Feldstein and other experts. On the deficit and debt issues Bernanke would like to see debt to GDP ratios "at least stable, or preferably, declining over time." He also cautions that this be done bearing in mind "the fragility of the current economic recovery." He says his estimate for the U.S. economy's growth rate is 0.7% annual rate for the second half, and 'looks likely to improve." His prediction is for inflation to settle at around 2%. His main concern is that the there will be "an erosion of skills and loss of attachment to the labor force" for the long term unemployed....

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Prices of homes in the U.S. increased by 9.3% in February 2013, according to the Standard & Poor's/ Case-Shiller survey of home prices in 20 major metropolitan areas. All 20 cities posted gains for the second month. Prices in Phoenix increased by 23%, and in San Francisco by 18.9%. The median home price in March was $184,300 up from the $154,600 in Jan. 2012. The peak was at $230,400 in 2006. The WSJ quarterly survey shows less than 3 month supply of homes in Phoenix and San Francisco. Supplies of homes declined by 16.8%, sales of previously owned homes were up by 10.3% in March over the prior year month. Supplies have dropped as banks are putting fewer homes in foreclosure and many homeowners are unwilling to sell for a number of reasons. Increasing rents and low mortgage costs also help increase demand. The interesting aspect of this is that prices are rising even as homeownership rate declined to 65%, according to the Census Bureau. And compared with 2004 there are 7.2 million more renters and only about 400,000 new homeowners, according to Capital Economics. Some of the homebuying comes from investors buying homes and converting them into rentals....

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William Isaac was Chairman of the FDIC during the tumultous years for banks and thrifts in the 1980's, he was Chairman from 1981-85, and organized the rescue of the Continental Illiois Bank in 1984. So what does he think is happening now. His view is that we have been spoiled by 25 years of unprecedented prosperity, and have let the 24 hour news channels and the anxiety of the changing mood of the country as it leaves behind the Bush years, put us into a bit of a shock mentality as we navigate the credit and banking storms now facing the economy with expressions like the worst crisis since the Great Depression in regular use. He says the U.S. had 3000 thrift and bank failures during the 1980's and early 1990's, and still had 130 banks on the problem list at year-end 1991. And he points out that virtually every major bank in the country would have failed in 1984 had a couple of developing countries renounced their debts. which the FDIC considered possible. He sees something positive in the decline in home prices. In his home town of Sarasota, Florida, home prices jumped 35% in 2005. Such price increases put homes beyond the reach of new homebuyers so a price decrease would benefit people especially young people entering the housing market. He understands the situation Bernanke was in when he made the decision to rescue Bear Stearns but he is a bit leery of the Fed becoming too proactive in this area. He organized the rescue of Continental Illinois Bank in 1984 but sees this type of action as a one time event made on an exception basis. ...

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The Case-Shiller 20 city Index showed a gain of 1.6% from the prior month in July 2012, and an increase of 5.9% year to date through July 2012. Experts say some of this improvement comes from less short and foreclosure sales which boost pricing data.

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Paul Volcker outlined the work remaining to be done to make the U.S. financial system safe in an interview with Gretchen Morgenson in October 2011. On Fannie and Freddie he says it is important to get rid of Fannie and Freddie at the first opportunity, because they simply shouldn't exist, and it was a mistake to have institutions of this type that mix profit making private opportunities with an implicit government guarantee. If a government wants to help low income people find housing, subsidize them directly, don't do it in this way by hiding the liability behind a quasi-private institution, says Volcker, in the interview with Gretchen Morgenson of the New York Times. Volcker sees a point of vulnerability in the industry of money market mutual funds, which operate without reserve requirements and capital requirements. The money market funds did a huge amount of lending to European banks and aggravated the pressures on them when they pulled back. One way to correct this is to require mutual funds to post the value of their assets every day to reflect market fluctuations. Safeguards on bank deposit accounts, such as FDIC insurance and bank capital requirements, do not exist for money market mutual funds. Other areas Volcker emphasized are strong enforceable capital requirements for banks, making derivatives transparent and standardizing them, and rotating auditors....

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Bernanke's defense of the action of the Fed's monetary policy making committee, on November 3, 2010, (with a vote of 10-1) to buy an additional $600 billion of Treasury securities over the next 8 months. His defense focusses on the prospects of deflation- how low inflation can morph into deflation (falling prices and wages), that can create a long period of economic stagnation. In addition, with low and falling inflation, Bernanke sees spare capacity in the US that can be utilized to reduce the number of jobless people. He points to the rise in stock prices and fall in long term interest rates in anticipation of the Fed's action, as evidence that this Fed move would improve financial conditions. Lower mortgage rates would make housing more affordable, higher stock prices would increase consumer wealth, confidence and spending. Spending would lead to higher incomes and profits for economic expansion, from this viewpoint. The situation in November 2010, was a deepening housing slump anticipated for 2011, gridlock after the 2010 midterm elections and no agreement on additional stimulus for 2011, the need to rebalance the global economy lacking cooperation from China (with China increasing imports and reducing exports and the US increasing exports and reducing imports). Fed's Bernanke does not mention these factors, and only hints at the gridlock towards the end of the statement. This Fed action will push the dollar lower, just as efforts to improve exports and the trade balance are underway. The Fed's committee sees the risks of commodities inflation as an acceptable risk in the current situation, and the use of a cautious approach assessing the purchase program regularly as sufficient measure of safety. As to difficulties of the unwinding of these policies, the Fed sees present danger outweighing the risks of no action. For emerging markets such as Turkey, India, Australia and other countries seeing even more inflows of capital, the risks are left to these countries to manage. The central banks of India and Australia moved to increase interest rates at the same time that the Fed made its move....

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Peter Coy, a veteran reporter at BW, who was prescient about the housing crisis, asks if defaltion is a possibility,; something hat happened in Japan in the 1990's and in the US in the 1930's. There is adownward ressure on wages from growing joblessness. With 7.2 million added to the unemployed since December 2008 and 263,000 in September 2009 alone, this pressure for labor to accept lower wages is growing.Jan Hatzius of Goldman Sachs predicts a drop in average hourly earnings of half a percent from the fourth quarter of 2009 through the fourth quarter of 2010. Hatzius accounts for workers strong aversion for wage cuts, without that the wages go down by 2%. Some experts say someone who lost his job 6 months ago is likely to accept alower wage now. If prices fall faster than salaries are workers better off. Not likely because of the destructive effects of defaltion from unused capacity an underutilized labor.

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Reinhart and Rogoff, 2 eminent economists who worked together on a book on financial crises since 1300, think that the current crisis has much deeeper to go, and the slight recovery in financial markets does not suggest that the imbalances in the economy are corrected. They point to economic weakness as a mechanism by which these imbalances are corrected. For example the economic weakness may be corrected by the weakening dollar resulting in accelerating exports from the U.S. The 1987 crisis had overvalued stock markets relative to earnings as an imbalance, and the 1998 LTCM crisis excessive hedge fund borrowing. Once these underlying imbalances were corrected the economic recovery was back on track. But the Fed's bailout of Bear Stearns has only put the financial markets on a safer footing. It has done little to correct the basic imbalances in the economy of over indebted consumers, and of lost wealth in housing, at the very moment that there is restricted access to credit. The financial market crisis only opened up the weakness from the extremely high leveraging used by the investment firms something like 1:30 by firms from M. Lynch to Goldman Sachs. The Fed's actions gave them time to shore up their finances and recover and the interest rate cuts and government checks help the economy, but not significantly enough to promote investment or increase consumption. The government checks would be used experts estimate for paying down debt and in this way it helps indebtedness a little, but does little to support consumption or promote investment, This the Fed's action also fails to do. The economy contracts and exports help the economy in recovering. The contraction itself say these economists is a necessary mechanism to make the adjustment in every crisis, until something else like exports helps create a recovery. Take December 1997, the Korean crisis. In this crisis the Korean companies invested heavily and were overextended , they borrowed heavily from the banks which in turn borrowed from overseas in dollars. When the Korean currency hit a record low against the dollar it became difficult for Korean companies to pay the increased cost of the dollar loans and many companies failed. As investment was slashed unemployment went up from 3% to 7.9%. Ted Truman, who worked on the Korean rescue effort as a Fed official, is now a scholar at the Peterson Institute of International Economics. He sees as similar to the overexpansion of housing and consumption in the U.S., the overexpansion and excessive borrowing in Korea's corporate sector in the years preceding 1997. After the rescue in Jan 1998, the Korean currency recovered by rising 63% in that year. Did this mean the crisis was over, just as the Bear Stearns bailout leads to gradually settling markets this year? During 1998 the Korean economy sank into a deep recession, the economy shrank 6% in 1998 when it was used to growing at 8%. Nouriel Roubini, another economist, who heads RGE Monitor, a financial and economic forecasting service, sees it this way. First, the mortgage loan imbalances are set into correction mode mechanism, then second, the economy contracts from housing and consumer debt going in reverse mode, then the third effects come into place as this feeds back into the financial system in the form of defaults on industrial loans, municipal bonds, and consumer credit. Additional sequences are in finacial system distress and government and Fed response to set the corrective mechanisms in place, but to also reduce the distress to the financial system and ensure that it is safe. We are where the first effects have ocurred, but before the second and third effects which should take place sometime in 2008 and 2009. The importance of understanding this cannot be overstated for business, planners, and investors because conducting business in this environment or planning or investing will require special skills and temperament which are different from the skills and temperament required in the expansion mode if one is to produce good results....

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Progressive caucus in the US House of Representatives led by Pramila Jaypal, a first time Indian American Congresswoman defeats an attempt by Josh Gottheimer of the Problem Solvers caucus to separate much of the president Biden's agenda in health, education and social policy and risk it being defeated by Senators Manchin and Sinema in the US Senate. Without the efforts on child care, education and health, climate change and social services part of the Biden Workers and Families Plan much of the Biden agenda would remain unfinished and Democratic party promises not kept. This also means that Manchin a Senator from West Virginia with a population of 1.8 million and Arizona with a population of 7.2 million, both conservative leaning Democrats could sink the entire agenda of president Biden to support American families and workers for a population of 331 million people. That two states with a population of less than 3% of the American population could sink the entire agenda of president Biden shows how fragile a situation has been created within the Democratic party to support workers and families even during the pandemic following the leadership of Carter, Clinton, and Obama Ms. Jaypal, a three term Congresswoman from Seattle, Washington state, was first elected in 2016 with an endorsement from Bernie Sanders who was the Democratic Party's leading candidate for president till the late stages of the 2020 US presidential primaries. Bernie Sanders says of Jaypal- "I think she is doing an extraordinary job. And I think the Progressive Caucus is doing an extraordinary job." Sanders founded the Progressive caucus after getting elected to the Senate from Vermont 30 years ago. Even though it is hard to imagine the Democratic party being the Democratic party without bold policies in climate change, affordable housing, reducing income disparities,  investing big in childcare, education and healthcare, attempts were being made to sink the entire Democratic party and national agenda going back to Franklin Roosevelt. Jaypal is described in the WSJ as diplomatic and firm, saying "I am so proud of our caucus; I have never seen our caucus so strong. And I am a very good vote counter also." Fifty members of the 100 member Progressive Caucus held firm in support of president Biden's original agenda without which the president would have little to show in keeping promises he made to the American people in the election and little to differentiate him from Mr. Trump who also supported infrastructure spending. Separating the infrastructure bill would have risked sinking Mr. Biden's plan for recovery of America from the pandemic and the devastating policies pursued by American presidents in the last two decades. Policies by previous presidents that have impoverished the country, created huge income disparities, weakened America in the world in trade and technological leadership, and wasted resources in foreign wars. There are no centrists or far left- these are just labels. When Ms Japal said "Let's just remember the Speaker (Nancy Pelosi) is a great champion of this agenda. I think she was trying to do as much as she could to get this done," she could have said it is Mr. Biden's own agenda pushed forward with conviction to help workers and families during the pandemic, and build a solid American recovery, restore American leadership in the world. Pramila Japypal is the first Indian American woman in the US Congress, and one of only two dozen naturalized American citizens in the US Congress. That she could play such a critical role for good in the US Congress shows that with the right convictions, determination, experience, much can be done for the common good in America and the world.   ...

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The share of new mortgage loans backed by the US government through Fannie Mae and Freddie Mac is at 92%. This makes the fast overhaul of the two agencies much more difficult. Treasury Secretary Geithner said last week that overhaul of the two agencies could take 5 to 7 years. The problems with Fannie and Freddie are real. The U.S. government subsidizes mortgages through Fannie and Freddie, encouraging Americans to take on more debt. Their balance sheets pose serious risks in another crisis, as long term investments are financed with short term borrowing. Any losses will be the responsibility of the US government. A recent paper from the US Treasury outlined some of the steps needed to wind down both agencies and to reform the way they operated including- requiring larger down payments and lowering loan limits, and increasing the fees charged for the government's guarantees to be more in line with the risk being taken. Slower reform in this area means additional systemic risks in the event of another crisis....

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Sales of single family houses in the U.S. decline by 2.4% in July 2014 compared to the prior month, and are at an annual rate of 412,000, according to the Commerce Department. Sales of existing homes are increasing but at a slower pace because of price increases. There is a 13.6% increase in median new home prices from July 2012 with wage growth of 2% a year.