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Israel's prime minister Netayahu and U.S. president Obama move further apart with serious disagreement on when to impose further sanctions on Iran for nuclear weapons development. Netanyahu accepts an invitation from Speaker Boehner to address the U.S. Congress in 2015. Republicans face a serious divide with the U.S. president with serious disagreements in domestic policy, including immigration, taxes, and ways of addressing increasing inequality.

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Brett Arends cites several factors for his skepticism about the 4th quarter 2010 US stock market rally. Cyclically adjusted price to earnings ratios that are 75% above their average value. A market value for US equities excluding financial stocks, that is within 15% of the October 2007 peak. Fed data that shows nonfinancial corporations have debt of $7.4 trillion at the end of the third quarter 2010, an increase of $250 billion in one year, and up from $5.5 trillion in 2005. This Fed data shows the debt for nonfinancial US corporations is 58% of their net worth, up from 41% five years ago. US consumers are still have the kind of debt burdens they had in 2008, with US households having reduced their debt by only about 3.5%. Arends says the leveraging is through the roof when you add up the debt that government and corporations have run up. Total debt has risen to $36 trillion, up 15% from the fall of 2007. He cites other experts who were right for the last decade who are skeptical this time- Rosenberg at Gluskin Sheff, Albert Edwards at S.G. Securities, John Hussman at Hussman Funds. The latest analysis by Jeremy Grantham at GMO is that large cap US stocks are not likely to beat inflation by much over the next 7 years. Arends has not mentioned global risk indicators such as the asset price bubbles developing in emerging markets, and the sovereign debt restructuring needed in debt burdened countries of the European Union. Analysis by the Economist in year-end 2010 points to the diverging directions of austerity in Europe, spending in the US and asset price bubbles in emerging markets, as a disturbing sign for 2011-2012. Risks in the US that Arends has not mentioned include problems in housing. Nouriel Roubini sees problems in housing in 2011. ...

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The steel and chemical industries are bright spots in the Russian economy, helping Russia weather the economic downturn of 2014-2015. Costs denominated in rubles have fallen much further increasing profits for companies like Severstal.

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Russia experts Robert Nurick of the Atlantic Council, and Graham Allison of the Belfer Center of International Affairs at Harvard, see a sea change in attitudes to Russia following the interventionist policies of president Putin. The Obama administration will now focus on limiting Russian influence for the remaining two years of Obama's second term. There is a loss of faith in Putin on the part of Obama and close advisors. Russia is seen as a regional power, and the Ukraine crisis is seen as having a serious impact on the Russian economy through decline in trade, foreign investment and capital outflows. Russia is a regional power because it is not the same as the old Soviet Union, it is much smaller, with a declining population, and dependent on oil revenues, and in this sense not the Russia U,S, president Truman and Kennan faced during the Cold War. Obama advisors see Putin's actions as counterproductive for Russia, as the economy is now seen as contracting in 2014, making its actions in Syria, and in Ukraine, unwise foreign policy moves that hurts Russia's economy and future prosperity. Democratically elected leaders in Turkey and Russia with control over the media and shutting down the opposition using control of the judicial process, have shortchanged democratic ideals, and in the process concentrated powers in one leader. This creates risks of arbitrary exercize of power without the checks and balances that are built into a truly functioning democracy, with foreign policy errors eventually leading to a resolution of the conflicts created as these policies are increasingly called into question. Putin and Erdogan were reelected because of economic growth- a contractionary economy or steep declines in growth put everything at risk. A footnote on Kennan, American diplomat and linguist, is appropriate. A quick reading of Wikipedia's excellent account of Kennan will show that Kennan was in favor of a nuanced approach to Russia based on changing conditions. He observed that policies that were seen as anti-Russian actually helped Russian leaders throughout history solidify autocratic type rule, which actually hurts Russia's normal evolution and development. Normal development and evolution similiar to ways Germany and other nations left behind Prussian history and traditions for a open, free society, and in the ways even the U.S. left behind older practices such as slavery in the south and limited representation democracy. In fairness to Kennan it should be said that containment of the Cold War was more a Truman-Acheson doctrine- continued under Eisenhower by Dulles-Nitze, and under Kennedy by Rusk-McNamara- which has roots in Soviet intentions of destabilizing war ravaged western Europe starting with Greece, following similiar efforts in Eastern Europe. Truman was right in aiding Greece, but the U.S. needed to be aware of changing conditions and not take a rigid stance, and get locked into supporting client states just because they were "our guys," a lesson Kennan emphasized throughout his life. Putin and Erdogan use appeals to Russian and Turkish nationalism to improve electoral support and stifle free expression of ideas necessary for growth in any society. This also provides a way to have a discussion with our German friends on engagement and economic relationships, without the rigid outlook of a Wilsonian or Acheson-Dulles kind. ...

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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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To get a clearer picture of the potential and problems with alternative fuels one has to cut through the political lobbying aspects to get an idea of what is doable without environmental consequences. There are many issues connected to the new mandate Congress is writing up for use of 9 billion gallons of fuel made from biomass in 10 years by 2017 and 21 billion gallons by 2022. Since it takes about 700,000 tons of biomass to produce 50 million gallons according to one energy analyst it would require the movement of 126 million tons of biomass from biomass growing areas to biomass plants that convert it into fuel in 2017. This would mean burning energy for transport and would require development of the logistics. The technology isn't here yet but scientists know that biomass can be converted into fuels resembling gasoline or diesel based on the molecular chemistry. Environmentalists and national security groups have joined together to push for this sweeping mandate that the Energy department estimates can replace a third or more of the country's gasoline needs by 2017 or 2022 as the fuel efficiency fuel savings also kick in by that time. The idea is to growthe types ofplant material and straw, switchgrass, that would require very little water and fertilizer to grow. Its the challenge scientists have to take on. And to use tree trimmings, corn stubble and certain kinds of garbage thats a biomass for conversion into fuel. Today about 7 billion gallons of ethanol are made in the USA after Congress passed a law in 2005. Its used mainly as an additive and replaces about 4% of the gasoline used in the USA. Congress new mandate on ethanol calls for an additional 8 billion gallons of ethanol from corn by 2015, in 8 years. Right now corn prices are soaring and corn used as feed for livestock is becoming costlier for meat producers causing them to complain and because it takes about 20 million acres of corn to produce these are acres that cant produce vegetable or fruit or other grain and food producers and processors are complaining that this raises the prices they pay for the inputs they use. So there is a lot of lobbying going on back and forth and some of the statements reflect this. The petroleum industry also does'nt like the idea of nonpetroleum based products and hasnt been too enthusiastic about this mandate and hasnt really made the conversion to their refining and distribution networks for widespread use of these alternative fuels. But Congress is determined and public opinion polls reflect the concerns of a public that is upset about nothing being done about the nationa's dependency on foreign oil. For this see the recent Business Week link. All this is going on while the price of ethanol has slumped and corn price inpouts for ehtanol production are soaring making ethanol less profitable, and see the recent link to the WSJ for this. Congress is responding to grassroots public opinion that wants something done and just as the auto industry learned by its failed lobbying on fuel efficiency the petroleum and other industries are just going to have to live with it it seems. ...

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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....