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Rapidly increasing credit to GDP ratios between 2008 and 2012 in Hong Kong, Singapore, Malaysia, Thailand, and Taiwan.

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WSJ reporter Bob Davis writes this report on the end of the China economic miracle in 2014 as he completes a 4 year assignment covering China. He says China's economy is slowing rapidly and he is pessimistic abou the future. Construction cranes visible across China's skyline says Davis, can no longer be interpreted as growth inducing. With rows upon rows of empty flats in third and fourth tier cities which account for the bulk of the increase in housing construction, the consequences of a debt fueled construction boom are easy to see. Davis cites the IMF on the dangers of credit fueled growth in China- only 4 countries have experienced as rapid an increase in credit to GDP ratio in 5 years. Each of the 4 countries Brazil, Ireland, Spain and Sweden experienced a sharp decline in GDP growth and banking crises following the credit bubble. Estimates of debt to GDP are as high as 250% for China. Krugman, Roubini and other economists have warned about the credit bubble, saying China is no exception to the rule for the risks posed by such a bubble. ...

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Orlik reports that the link between China's GDP growth and lending has broken down as credit expansion is accompanied by slowing growth. Slowing credit growth and lowering GDP growth even further is the price China's ecnomic planners are willing to take to forge a new path of sustainable growth, increasing efficiency of investment and increasing domestic consumption. The ratio of China's credit outstanding to GDP has jumped to about 180% in 2012 from 123% in 2008. Rapid expansion of credit is one of the danger signals before a crisis according to the IMF. Turkey and China are facing danger signals according to this IMF danger indicator.

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Martin Feldstein says China is gaining control of three problems it faces of shrinking export markets, the effects from a large stimulus in response to the 2008 financial crisis, and inflation especially high real estate prices. The economy is shifting to higher role for services and less dependence on exports under the new five year plan. The real estate prices are levelling off after steep increases. And inflation is under control. New investment will go into infrastucture needs such as power development and low income housing. As the economic problems are being tackled, the political problems remain. China faces an aging population under its one child policy, and it will have to support an increasing number of retired people in the future. Inequality and corruption are two problems that continue to grow and present challenges to the new leadership taking over in 2013.

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Arne Duncan says that one cannot in good conscience let $87 billion in subsidies to banks to make student loans go to these banks at atime when these resources are badly needed to give students access to colleges and educational opportunities. $87 billion will be saved by ending the troubled FFEL program. The Education Department plans to substantially increase the PELL grant program and other financial aid for low ncome students, and to raise college graduation rates, and strengthen community colleges. And $10 billion will be applied to reduce the deficit.

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European Central Bank president, Mario Draghi, addressing the European Parliament in Brussels on April 25, 2012, supported both sides in the issues facing the eurozone, calling for continued vigilance on structural reforms to improve competitiveness of countries in the eurozone such as Spain and Italy, and at the same time saying it was imperative to generate economic growth. He told the European parliament: "The uncertainty about the present situation is very, very, high... Any exit strategy is premature given the current economic situation." Saying that the fiscal compact had been negotiated recently to control spending, yet what Europe needed was also a growth compact- "but my most present thought right now is to have a growth compact." He emphasized that it was now upto governments and banks to pick up the ball. The ECB's achievement was buying time with its 3 year loans to banks in Spain and Italy and other EU countries in Dec. 2011-March 2012, which he described as no ordinary achievement. Francois Hollande and Angela Merkel seized on Draghi's comments to show they were doing the right thing. Merkel conceded that growth was needed, saying sustainable initatives would be good for Europe, that what Germany was opposing was simply stimulus spending that would increase debt without the structural reforms to improve competitiveness. Hollande for his part said he would call for eurozone bonds to pay for industrial and infrastructure projects, and a financial transactions tax....

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The new interim board chairman of GM i Kent Kresa, 71 years old, who was CEO of Northrop Grumman Corporation between 199o and 2003, and previously served on the board of Chrysler. He is described as being very down to earth, pragmatic, who is expected to do well dealing with the government, by a senior partner at Korn Ferry International recruiters. Mr Kresa said in a statement that a new slate of directors will be submitted at the next annual meeting that will include a majority of new directors. That meeting is scheduled for August but might be pushed up. Kresa and Philip Laskawy, Ertnest & Young's retired CEO, had tried for 2 years to persuade fellow directors to replace Wagoner. They felt that Wagoner had fialed to change GM's corporate culture but were opposed by George Fisher, retired CEO of Eastman Kodak, and Eckard Pfeiffer retired CEO of Compaq. Of the 11 outside board members, seven are in place since 2003. Interestingly they are all retired CEO's except for Kathryn Marinello, CEO of Ceridian Corp. This has prompted one remark at ameeting of the administration task force that the board was "a collection of failed CEO's". Many experts advising the taskforce and the bondholders put some pressure on the task force to replace the board because of its complete failure....

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China's GDP growth for the 4th quarter of 2012 was 7.9% over prior year, increasing from 7.4% in the third quarter of 2012, according to the National Bureau of Statistics. GDP growth for 2012 was 7.8%, down from 9.3% in 2011. Growth is stabilizing at 8% which shows China is managing the economy, slowing the growth rate with a smaller stimulus planned in 2013, and working on sustainable growth for the longer term. This is a significant positive as a new leadership takes over in China and sets priorities for stable growth, and improvements in housing and health care.

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Michigan is almost another plantet when it comes to replacement sales for clunkers. Analystspoint out that 81.1 % of michiganians traded in their domestic clunkers for domestic replacements, but only 42.8% in the rest of the country did so.

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Junichiro Koizumi's decision to support his son for the seat he held in Yokosuka, a naval port an hour from Tokyo. Fackler points out an astounding fact about second generation and third generation leaders in Japanese politics that make it an insider's terrritory. Second generation politicians in parliament make up an unusually large part of the legislature. About 40% of LDP party members of parliament are descendents of prior lawmakers. Of 7 prime ministers, only one was not a son or grandson of a former lawmaker. Shinzo Abe and Yasuo Fukuda were grandson and son of former prime ministers. Even the Democratic Party of Japan has its share of second generation members of parliament of about 20%. In this fascinating account of Japanese politics Fackler talks to Mr. Yokokume, a DPJ candidate running against the younger Koizumi, at his campaign offices. With a small fraction of the financing received by the younger Koizumi and voters at the train station telling him this is Koizumi country, Yokokume is worried that politics is for too long closed to outsiders in Japanese politics. Public opinion in Japan describes this in negative terms as depriving Japan of the fresh blood and new ideas from newcomers to politics to renew Japanese government....

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The IMF's changing views on the value of fiscal austerity. In the current debate about the value of fiscal austerity, there is the IMF view, a German view based on its own experience, and the views of other countries in Europe. The IMF's view has shifted over time. The IMF World Economic Outlook 2010, describes its view of the effects of austerity measures in the form of spending cuts and tax increases- "Fiscal consolidation typically has a contractionary effect on output. A fiscal consolidation equal to 1% of GDP typically reduces GDP by about 0.5% within 2 years and raises the unemployment rate by about 0.3% percentage points." Over the longer term there are benefits as the private sector is not crowded out in the search for captal funding by the excessive government borrowing. The IMF's economic models suggest that it would take 5 years before reaching the breakeven point when the benefits of austerity measures exceed the effects of austerity. The German view held by German central bankers is that the actions stimulate growth in the short term. Manfred Neumann, professor emeritus at the Institute for Economic Policy at the University of Bonn, says this is called the "German hypothesis" as it reflects the experience of Germany from austerity actions taken by Germany. Laurence Ball, professor of Economics at John Hopkins University, is critical of the "German hypothesis" and its application across Europe in different situations. Germany is a large exporting nation and exports helped counterbalance the effects of austerity measures. Within the eurozone with fixed exchange rates the exports of less competitive countries cannot be boosted through devaluing the currency to gain price competitiveness. The other problem is that with interest rates close to zero in the euro zone the central banks cannot cut rates aggressively to counteract the effects of spending cuts. The problem gets compounded when a number of countries are taking austerity measures at the same time accentuating the downturn....

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What is the educational system Toyota is relying on as it faces a huge problem stemming from its high growth rate of new employees overseas who have little knowledge of the Toyota Way and the Toyota Production System. Another part of the same problemis that as it ages many of the last generation of Toyota executives who were there from the inception of Toyota's early days in the USA and the early days of the extraordinary growth in the 80's and 90's will now be retiring or in their seventies and eighties. All this is happening as the American Big Three and the German manufacturers are getting new blood and going through a process of renewal, and the Americans especially are seeing themselves as the underdogs coming from behind. So Toyota's concerns can be seen in a new light, any complacency on its part is going to be costly in the long run. Toyota is using the Toyoa Institute in rural Mikkabi, Japan for training its senior executives like Randy Pflughaupt, chief of US marketing for the Toyota brand. Watanabe, presidetn, Fujio Cho chairman, and Akio Toyoda of the Toyota family personally teach there and share their personal experiences. Toyota asks executives there to come up with a problem Toyota faces and come up with a proposed solution all on one 11 by 17 sheet of paper. Hands on on the ground on site fact finding and exploration are stressed. A management school Globis in Japan instructs Toyota's middle management inthe Toyota philosophy including quality control philosophy methods such as asking the 5 Why's, why a problem is ocurring until one reaches 5 or 6 levels of answers. Global centers in USA Europe and Asia have been opened by Toyota to train roving experts who can help increase the numbers of roving experts from todays 2000 mostly at this time from Japan. These roving experts teach older employees as well as coach younger ones. Then there are the Toyota Technical Training Institutes. The one in Bangalore for example offers an intensive program for new hires to teach Toyota's basic principles. The one in Bangalore has 21 teachers. And appicants selection is tight in India just 64 out of 5000. Before working on the assembly line the applicants will spend 2 years in classes in technical training, including discipline and personal grooming. Its interesting that the applicant mentioned here was from a village where his family and friends were especially proud of his Toyota uniform and training. The idea may be to avoid the problems of trade unionism, worker feeling of entitlement and worker rights which has led to the problems in the US and in India of workers not willing to learn new things being open to new ideas. One way would be to avoid entirely areas where there has been trade union influence, history and activity such as rural Kentucky or rural Karnataka. The student Harish Hanumantayappa is 17 years old and sees this as an opportunity that was not even in his imagination, which makes for a highly enthusiastic trainee, just the kind Toyota may be looking for away from India's trade union and worker indiscipline environments in some states and regions. Reflecting on this one can note that its natural for Toyota to respond in this fashion and it may extend the period in which the Toyota Production System and the Toyota Way functions effectively. But companies like HP also had what they called the HP Way but eventually this suffered a decline as new managers and leadership came into the picture. Only now is HP recovering and getting back its step under a manager who spent his training years at NCR not a training ground for managers, but may have been chosen for his good management instincts and performance and personal characteristics. Also many of the tenets such as asking 5 Why's and the Toyota Production System except for the Just In Time Innovation are basic quality control philsophy that is practiced all over Japanese industry and is practiced worldwide and originated in quality control philosophy in the United States in the 1920's and 1930's before declining and then coming back in the 1980's with Deming and Juran two American quality control advocates. So there is a pattern of decline as new managers forget old ideas and its not clear if Toyota can overcome this tendency completely, except to sustain the memory of what Toyota is and how they got here for as long as possible for a new generation of managers. And the risks to Toyota may also come from another direction to which Toyota may not pay as much attention which is the innovation that Americans are known for, and the innovative thinking mode is a bit different from the rigorous training of the total quality mode. ction ...

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GE is selling three of its healthcare units in India to its venture with Wipro, third largest Indian software and IT company. The idea is to develop products faster. The units are Medical Systems India, Life Sciences and Medical Diagnostics.

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Experts say experience can be a serious handicap if one does not have ahealthy skepticism about ones assumptions and habits that tend to reinforce what one is thinking and not question old ways and old habits. This leads to costly mistakes at the level of project management and costlier mistakes at senior management levels. Experience proved to be a serious handicap at General Motors because management did not question its old assumptions about what sales would look like in future years and old habits went so deep that no effrts were made to change with changing demands for fuel efificency that made their impact even earlier in Europe. This is true of what happened at the central bank with Greenspan and at Treasury with Rubin, and Summers, and at the highly leveraged investment banks like Lehman Brothers, Bear Stearns, and Morgan Stanley. In both cases their was an additional handicap of the culture, with Detroit having its own culture and ways, and New York banking havings its own culture and ways. ...

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Most of the problems in Eastern Europe follow from overborrowing by the privae sector , consumers and corporate borrowing, in foreign currencies. According to David Roche of Independent Strategy, private sector foreign currency debt rose to 126% of foreign exchange reserves between 2002 and 2007. Roche is former head of research and global strategy at Morgan Stanley. As a result he says, 50% of household debt is in foreign currency in Hungary, 30-40% in Poland and Romania, and over 70% in the Baltic states. The debt in lowcost foreign currencies like Swiss Frances, Euros, and even yen, also expanded in the corporate sector. BY mid 2008 non-financial corporate debt in foreign currencies reached over 45% of corporate laibilities in Bulgaria, over 30% in Ukraine and Baltics, and over 20% in Hungary and Russia. To get an idea of the way the foreign subsidiaries of major western european banks expanded their lending, note that lending to homeowners between 2002 and 2007 doubled each year in Romania, rose 60-80% in the Baltics and Bulgaria, rose 20-30% in Poland and Hungary. And lending to corporations grew 20-30% a year. There is aclear suggestio of reckless lending and reckless borrowing in these numbers just as was seen in the way mortgage lending ocurred in the USA. The history of this kind of lending goes back to the reckless lending in Latin America in the eighties that led to lost decades many years before, and is a recurring story. Now Roche sees loss of GDP of 5%-6% for Turkey, Russia, Romania, Czech Republic and Poland, and 8-10% in Hungary, Bulgaria and the Baltic states. That would take 40% of foreign exchange reserves in Turkey,Czech Republic, Poland, Hungary and Ukraine. And this will have a human cost in jobs lost, crime, poverty, and years of progress lost in these countries. And it will ricochet back to the parent companies of the European banks that did a lot of this lending, with $130 billion additional losses, and a loss of 10% of tier one capital (equity capital plus disclosed reserves) of Western European banks....

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As remittances fall and in some places disappear from workers in developed countries to their families in developing countries, Kristof says about 46 million people there will fall into poverty. Something Zoellick of the World Bank has been warning for some time. Everything from food, school lunches, tution for children to go to school, housing, will be affected.

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Krugman says that China fears that a decline in the value of the dollar will reduce the value of the 70% of the $2 trillion in assets it holds, that are in the form of US Treasury bills. This may have been the reason Zhou Xiaocuan, China's central bank governor called for a new currrency to replace the dollar as new "super-sovereign reserve currency." He doesn't think this is likely to happen. Neither is his hope and that of Japan that somehow the two countries can export their way out of current difficulties. The US will not be the market it once was, that is certain. So Krugman says China, Japan, and the Europeans on the issue of the Stimulus are all hoping that things will return to the way they were. Something that is not going to happen. March figures in the US for jobs lost hit an high of 663,000, and this crisis says Krugman has years to run.

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Serious issues raised about Ford management, strategy, new product, and a potential credit default. Is management upto the task? Ford employees say CEO Bill Ford also less visible around the automaker. They say that he is no longer at the employee cafeteria where he used to go frequently. What does one make of this and the soft marketing stuff coming out of Ford, when deep and big changes are needed. Goldman Sach's auto analyst Robert Barry say Ford's transformation is especially difficult because Ford has underinvested in cars for years and it is trying to make up lost ground. Couple of things are hitting Ford in particular- 1. Are sales in a free fall? Ford Explorer- down 30% from last year, even the Mustang down 8.5% 2. Cars sell at a steep discount -consider Focus $3060 less than average compact according to JD Power, Freestar minivan $3000 less than the Honda Odyssey, Ford Fusion $3100 less than average vehicle in that segment. The Fusion $20,150, Accord 22,200, Impala 22,100 3. While GM is weaning itself off of fleet rentals to build image, Ford is too weak to do this, fleet sales in April 30-40% of total !!! 4. Ford Credit earnings drop with the rest of the business. 5. On the probabilities of Ford credit default or bankruptcy- a chart made by J.P. Morgan in April 2006 shows the credit markets see a default more likely at Ford than at GM in two, three or five years than at GM. The probability of default in three years is 34% at GM compared to 43% at Ford. ...