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China's current account surplus has declined to 2.8% of GDP for 2011 from about 10% in 2007, and will be around 2.3% of GDP in 2012, according to IMF estimates. The U.S. current account deficit is down to 3.1% of GDP from 5.1%. By controlling the exchange rate China was able to keep the competitiveness of its exports, resulting in a five fold increase in exports from 2000 to 2010, according to the IMF. The decline could be temporary say experts, as the the recession in Europe and the U.S. resulted in slowing exports, with its infrastructure buildup sucking in imports of machinery and other goods from the western countries at an accelerated pace with its 2009 stimulus measures. Another reason is that in the last decade China has developed its own high tech and other companies which will now increase exports. IMF forecasts show a pickup in China's trade surplus to 4.25% by 2017. This could be lower if the renminbi is allowed to appreciate. Estimates of appreciation of the renminbi are 8 percent in nominal terms since June 2010 against the dollar. Including inflation, which is higher in China, the renminbi has appreciated by 13% since June 2010. ...

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Guerrera describes the vital role that FDIC chairman Gruenberg's plan for unwinding failing financial institutions will play in tackling the "too-big-to-fail" problem facing the U.S. He points to the increasing importance of this after the failure of risk management systems at JP Morgan Chase bank.

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Shiller says policy is captured and communicated by metaphors, the most effective being belt tightening for a family. However what works for a family does not work for a country in the same way, especially if not accompanied by other measures and implemented in a strict manner without looking at the real situation. Better suggests Shiller, and more real is the metaphor of "winter on the family farm," where people work to do other chores than planting and harvesting, because a lot of other things need to be done and this is a good time to do it. This would include cleaning up the place, fixing the farm and the barn, fixing machinery, building fences. The farm's members pay a tax in terms of donated labor which goes to do all the work needed and helps the farm's productiveness as the weather changes. Similiarly the Salant-Paul Samuelson balanced budget theorem from the FDR days shows an increase in national output by the amount of a tax, such as the one proposed in France by president Hollande; that would then be invested in hiring more teachers (the labor) and investing in education infrastructure....

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Former World Bank chief Zoellick points to the need for investments in human capital and productivity improvements in emerging markets such as India, China and Brazil to overcome the problem of slow growth in 2013.

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Easwar Prasad, Cornell University economist, and a former head of the IMF's China division, says the new report by the World Bank and the Development Reform Commission (DRC), is part of an effort by government officials in China to push the agenda for change forward during the transition to a new leadership. This includes Premier Wen. There is pushback from large state enterprises. The DRC and the World Bank had called for a change from the current situation to allow more private sector involvement in the economy, which means restricting the growth of the large state owned companies and letting the private sector operate in more parts of the economy. The alternative is to see growth slowing quickly and -some economists- say suddenly without warning. The role of Zhu Rongji, a former prime minister during the period Jiang Zemin was president, in pushing for changes appropriate to the period, is also cited. The last decade under prime minister Wen Biao is seen as one in which China relentlessly pursued its currrent export led model of development with large state run companies and state run banks dominating the economy. This has made change even harder to achieve because of the pushback to preserve the status quo....

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Sohrab Ahmari of the WSJ talks to Masrour Barzani at a forward base on the Syria-Iraq border in Dec. 2015, at a time when terrorist attacks in France and the U.S. are shifting public opinion in the UK, Germany and the U.S., as well as France.

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Mario Monti, Italy's prime minister, tells Alessandra Galloni of the WSJ, "Germany will never let France go." French economist Sorman says Americans do not realize that the EU and the Euro were created for political, not economic reasons, and the idea was to bring peace to Europe and especially between France and Germany. He sees the EU countries staying through this crisis together, and France emerging more competitive from this experience.

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Bruni on the view that Obama has squandered his advantages of oratorical transcendence, poetry, serious thoughtfulness, in the U.S. presidential election of 2012. He does not mention the lack of a serious plan to turn the economy around, high rate of joblessness and declining incomes that are a basic issue in the 2012 election, and how oratorical transcendence has little correlation with getting the right policies implemented. The Des Moines Register's support in 2008 put Obama on the road to the presidency in 2008 with a victory in the Iowa primary. In 2012 it gave its endorsement to Romney to give him a chance to correct the problems with the economy and to do this with a new effort to forge the bipartisan consensus missing in the Obama first term.

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Li Keqiang, China's new premier, is a member of the "Class of 77," who gained entry to Peking University when university entrance exams were reinstated after Mao's death. This is a period of great curiosity in China about the outside world. Li described it this way in 2008: "In this period knowledge was expanding with the speed of an explosion. I came here not just for knowledge, but to mold a kind of temperament, to master a kind of academic discipline." This he did by working extremely hard trying to master the English language and Western legal theory. He is now the only leader in China who can speak fluent English and is familiar with western concepts of law. For this he owes much to one of his professors, Gong Xiangrui, who studied at the London School of Economics in the 1930's and supported a multiparty system for China. Li was selected as one of the students to translate "The Due Process of Law" by Lord Denning, a British jurist. He spent the next 15 years in the Communist party's Youth League and moved up through the ranks. Many of the "Class of 77' " are still close friends and in academic positions in Singapore, Hong Kong and other universities. He understands the weaknesses in China's legal system because many of his close friends are lawyers, judges and law professors. Evidence of his intellectual openness, is his return to Peking University for a masters degree in economics years later, his thesis on urbanization, and his sponsorship through the Development Reform Commission think tank and the World Bank's Zoellick, of the report published in 2012, "China 2030." That report called for China to change course and reverse the role of state owned firms in the economy, giving consumers a bigger role. Like many of China's leaders this openness also meant during the period of turmoil of the Mao period and the decades following this, of a reticence to talk about political change that came over the entire country, in the words of the 2012 Chinese Nobel Prize Laureate's name, Mo Yan, a kind of "Don't Speak." Taking any kind of political position was simply too risky. The presence of 4 older Politburo members in their mid-60's who are close allies of former president Jiang Zemin and likely to preserve the status quo, also suggests a cautious approach in making changes. One key difference between Jinping- Keqiang from the Jintao-Wen Biao leadership is that Jinping has experience in provincial leadership positions in Hebei, and Keqiang was provincial leader in Henan, China's most populous province, as well as leader in industrial Liaoning province. By odd contrast Hu Jintao was a leader in the remote Tibet region and Wen Biao was a geologist in the northeast for many years. This gives the new leadership team a first hand knowledge of conditions in populous provinces, and the connections with the World Bank's Zoellick a kind of window to the outside that no other leader has had. Jiang Zemin, a former mayor of Shanghai, China' most westernized city in the 1930's and today, was himself a experimenter in his own right when he initiated the changes tht gave China entry into the World Trade Organization. His support of Xi Jinping gives Xi the needed backing for making change happen when the time comes....

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Prof. Cochrane of the University of Chicago goes over the Federal Reserve's new "Enhanced Prudential Standards and Early Remediation Requirements" for big banks. He finds serious shortcomings in the Fed's proposals to regulate the largest banks. He points to the proposal that puts less than one dollar at risk for every 10 borrowed dollars as ridiculously low, and says the Fed is admitting it really does not know how to correctly measure and regulate credit exposure in today's banking system. The Fed's remediation requirements are basically ways to get regulators to take action early with "triggers," because regulators were slow to act in the last crisis. This is down to regulating the Fed, not the banks. As stated in recent editorials in the Journal, and supported by Daniel Tarullo at the Fed, the best way to protect the financial system is in having capital reserve requirements that are high enough and reliable enough for a crisis.

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Moritz Kramer, a managing director at S&P, says Spain, Italy, France and Portugal cannot depend on austerity measures and cuts in spending alone to resolve the eurozone crisis. This is only one aspect of the problem facing the countries in southern Europe. The major reason for the problem is the lack of competitiveness in their economies. Nobel winner Stiglitz also points this out and adds that its important to note that the human and natural resources of Europe are the same and the potential just as good today as before the eurozone financial crisis. He says southern Europe has failed to utilize its human and capital resources and improve its technologies in ways that would make it more competitive with Asian countries. Experts point to the decade it took Germany to address problems created by inflexible labor markets, wage competitiveness, and investments in technology and human resources to get to where it is today.

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Thomas Sargent of New York University, the 2012 Nobel prize winner in economics, says the EU leaders can learn from the way the federal government in the U.S. handled the issue of state's debt when it came up in the 1790's and in 1840. In 1790 the federal government- under the leadership of Washington and Hamilton- saw the need to honor state's debt because of the contribution made by states in the war of independence and the U.S. assumed state's debt. In 1840 the U.S. refused to assume state's debt and states went into default. The result was beneficial because state's passed balanced budget rules and restrained reckless spending. Another benefit was that this preserved state rights to manage their finances and the federal structure setup under the constitution.

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The Obama administration's proposed budget for fiscal 2013- for the year beginning Oct. 1, 2012- shows the budget deficit for the year at over $1 trillion. It shows new revenue of $1.7 trillion over 10 years mostly from ending the Bush period tax cuts on families earning more than $250,000 a year, restoring the estate tax to the 2009 level and limiting subsidies for oil and gas companies. It proposes raising the tax rate on dividends from 15% to as much as 39.6%, for households earning more than $250,000 a year. This measure is expected to generate $206 billion over 10 years. The budget also offers "principles" for future tax reform by proposing the Buffett rule replace the Alternative Minimum Tax (AMT). The AMT was not indexed for inflation so it has the weakness of putting more middle class taxpayers into AMT, leading to temporary solutions by Congress. The Buffett rule would have people earning more than $1 million pay a tax rate of at least 30%. Many wealthy Americans like Mitt Romney paid lower taxes using deductions to lower tax rates- Romney's tax disclosures show he paid effective tax rate of 14%. The White House says the budget will reduce the deficit by $3 trillion over 10 years through the new taxes, and small changes to Medicare and Medicaid and other spending cuts. This is in addition to the $1 trillion in spending cuts agreed to in a deficit reduction agreement in 2011 between Democrats and Republicans in Congress. The budget proposal proposes investment in education and transportation projects of $137 billion, and continuing through Dec. 2012, a tax break for businesses to increase investment. It includes mandatory spending of $2.7 billion for new community college programs, $6 billion to modernize schools, and $1.8 billion to make homes more energy efficient. It also increases the resources of the Securities and Exchange Commission and the CFTC (two agencies overseeing the banks), $26 million for a new Interagency Trade Enforcement Center to counter unfair trade practices, and cuts U.S. postal delivery to 5 days a week. The result is a program designed to be balanced in terms of economic fairness, making modest investments in the future for education and energy, continuing policies to stimulate growth, and extending the date for bringing the deficit under control to 2018 instead of 2014 as planned earlier....

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Charlie Rose talks to Paul Ryan, the Republican Congressman from Wisconsin on his "Roadmap for the Future" and a major overhaul of taxes, spending, Medicare and Social Security. He tells Rose, who hosts a news show on Bloomberg TV, that in 2010 he is all by himself looking at the big picture for shaping ideas on economic reform, and still hopes others will join him in this effort.

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A Wall Street Journal/NBC poll conducted in September 2010 shows a big change in public opinion in the US towards outsourcing of production and on free trade agreements. Poll respondents were asked "Do you think free-trade agreements have helped or hurt the US?" The response in 1999 was close to 30% for those who said hurt and those saying helped. By 2005 the curves diverged seriously with more people saying that it hurt and fewer saying it helped. In 2010 this swing is sharp with about 50% saying it hurts the US and only about 10% saying it helps. When asked "Do you agree or disagree that outsourcing of production and manufacturing work to foreign countries is a reason the U.S. economy is struggling and more people are not being hired?" the response is overwhelmingly agreeing that this is bad for the U.S. job situation. The answers are the same across party affiliation, in fact higher for Republicans than Democrats 90% to 84%, higher by income level with 93% for those making over $75,000 agreeing and 86% for those making less than 75,000 agreeing, 93% of professionals and managers agree compared to 89% white collar and 83% blue collar agreeing. This shows all segments of society agree that that the manner in which free trade and outsourcing of production is taking place is not helping the U.S., and this time the highly educated segments are leading the way. Bill McInturff, the Republican pollster who helped do the survey points to the big change in the way well educated and upper income people perceive free trade agreements. In 1999 only 24% of this group making over $75,000 said free trade hurt the U.S., now 50% of this group says it hurts the US. This is sure to lead to big changes in U.S. trade and currency issues with China and other countries. ...

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In a shift from statements at earlier summits which focussed on fiscal restraint, the Camp David summit continued the "firm committment to fiscal consolidation," yet emphasized jobs and economic growth as "imperative." There is new flexibility to address needs for economic growth and no specific timetables for fiscal balance as in previous summits. Obama had many one to one encounters with the other leaders. He discussed the euro crisis with Cameron while working out on a treadmill, and watched the Champions League soccer final between Chelsea and Bayern Munich with Merkel and Cameron. Each leader of the G-8, Harper of Canada, Monti of Italy, Hollande of France, Medvedev of Russia, Cameron of Britain, Noda of Japan, Merkel of Germany, was assigned a cabin in the rustic wooded setting of Camp David's mountains. A special effort was made to see that Germany's Merkel did not feel isolated in the setting because of the growing sentiment that austerity policies pushed by Germany are not working. On Iran, Obama stated that he was "hopeful that we can resolve this issue in a peaceful fashion that recognizes their sovereignty, but also recognizes their responsibilities."...

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A 93 year old hero of the French Resistance, Stephane Hessel, publishes a pamphlet called "Indignez-Vous!," released by a small publishing house from the publisher's home. He calls for resisting the "international dictatorship of the financial markets" and "defending the values of modern democracy." He protests France's treatment of illegal immigrants, the influence on the media by the affluent, cuts to the social safety net, French educational reforms. It was first published in October, and now has sold 1.5 million copies, all through word of mouth advertising. It has been translated into Spanish, Italian, Portuguese, and Greek. New editions are planned for Slovenian, Korean, Japanese, Swedish and other languages. In Britain, it was published with the title "Time for Outrage." The pamphlet is about 4000 words and only 14 pages of text. Its timing is good, as the French are debating what to do in their politics with an election approaching and Sarkozy's standing at new lows. The short length and low price are a big plus, at $4 it made a convenient Christmas gift. Britain, Spain, Portugal and Greece are going through austerity cuts. Public sentiment has been aroused by the cuts, and by the overarching influence of financial markets on the economies of these countries. Some of these countries referred derisively as piigs- Portugal, Ireland, Greece, Spain -countries in the financial markets. The economic impact has fallen disproportionately on the young, with high jobless rate for young people from Italy to Spain, and cuts in funding for universities and schools in the UK also fall heavily on young people. A sense that something has gone wrong in the free market system and the western world. Austerity cuts in spending in the U.S. create a similiar feeling and joblessness among young people is also high in the U.S....

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The Washington Post is critical of the military's arrangements for the transition to democracy in Egypt. It calls on the Obama administration to make the military in Egypt accountable for a return to democratic government in Egypt, including suspension of aid. The military's role in ousting an elected government which would have been tested in coming legislative elections is seen as a serious mistake.

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Ann Lee a former investment banker and now adjunct Professor at New York University, gives us facts that show the smaller banks that lend to small and medium sized businesses in the country are being closed by the FDIC. According to ADP small business that employs between 1 to 49 people, accounts for 48 million jobs, those between 50 and 499 employees account for 42 million jobs, and large business for only 17 million jobs. Without access to capital these small and medium sized businesses will continue to layoff employees, creating a vicious cycle of falling credit and demand. According to Automatic Data Processing's August employment report large business shed 60,000 jobs, medium sized business 116,000 jobs and small businesses shed 122,000 jobs. These smaller banks says Lee have done most of the lending to small and medium sized businesses. And overall lending has dropped from pre-crisis levels. Treasury's Capital Purchase Monthly Lending Report shows that banks that received government money actually reduced loan balance by $54 billion. According to reports issued by major credit rating agencies $700 billion of asset backed securities were underwitten in 2007. In 2009 only $10 billion was issued. This has a significant impact in every area. Banks have no incentive to lend with all the bad nonperforming loans on their books. They only hope that over time renegotiated loan terms would enable to recover these loans. But this might take a decade says Lee, if this is similiar to other crises like the one in Japan. She says what the banks do to make money is to borrow virtually unlimited amounts from the Fed at near zero rates and earn money from the spread when they lend to the Treasury. Does our current banking system make sense she asks. Banks are not investing in economic activity, in real products and services,but engaged in agovernment backed shell game that enriches bankers at the expense of everyone else. She says that the banking lobby may prevail in preventing the nationalization of the banking system, but this will not prevent questions about the status quo and its assumptions from arising if the recovery and regulatory reforms fail. ...

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The home ownership rate for the U.S. in March 2012, is 65.4%, the same rate as in 1997 before the housing bubble, according to the U.S. Census Bureau. The irony of this is that the housing bubble was inflated by politicians in Congress and mortgage lenders and purchasers of mortgage securities. Fannie Mae and Countryside worked together ostensibly to promote home ownership while pursuing profits. In the case of politicians they pursued goals of raising employment and growth without understanding the risks of artificially inflating home ownership, and without consideration for incomes of subprime borrowers. A less benign view of the interests and goals of politicians comes from reflections on the impact of political lobbying by Fannie Mae and other housing lenders in the U.S. Congress. The consequences in terms of foreclosures have been devastating for minorities as well as other middle class homeowners. It has also damaged the U.S. banking system, credit growth in the economy and prospects for recovery, which will take years to correct. The federal government is also saddled with large losses at Fannie Mae because of its quasi government agency role. That role led to inflation of the bubble. Most of the consequences will be borne by middle and lower income households in the U.S. The pass-through effects in a global economy affect Europe, and emerging market countries. ...

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U.S. Federal Reserve governor Daniel Tarullo tells the Council on Foreign Relations that so much remains to be done four years after the financial crisis. The law firm of Davis Polk says 67 percent of deadlines were missed for new rules required to be set in place by the Dodd-Frank legislation, including the Volcker Rule. Tarullo said: "It is sobering to recognize that more than four years after the failure of Bear Stearns began the acute phase of the financial crisis, so much remains to be done." Tarullo fears that crucial momentum may be lost because of the long delays stemming from resistance by the banks. Tarullo met with bank CEO's in April 2012. Banks have protested that Fed stress tests have not revealed the parameters for the testing. Tarullo's response given at a recent Fed conference in Chicago were that this would let banks game the exercize by running the Federal Reserve model and not improving risk management and capital planning, making this a mechanical compliance exercize. Banks have particularly opposed a requirement that limits the risk in business between two banks to 10% of their credit risk....