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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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The authors, Becker, Davis and Murphy, are from the University of Chicago. They point out that the uncertainty created by the Obama administration's programs including healthcare and social investments in education, energy conservation, and the desire to reduce carbon emissions, all tend to slow business expansion and investments to create jobs by putting additional costs on business. The expanding federal deficit and national debt also create additional uncertainty. Their point is that it was a mistake to start making major changes to transform the U.S. economy at this time, and that it would have been wiser to do these changes after the economy had recovered completely from the crisis. All efforts they say should have been concentrated on establishing conditions for a strong recovery. When combined with the lack of regulatory reforms to fix problems left behind from the crisis, and other failures, serious questions arise about how things will turn out in coming years. See Krugman- The Feeling of 1937, where Krugman takes this up from another angle, again with concerns about the future....

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According to researchers at AARP and the Economic Policy Institute women over 50 years have a harder time than men of the same age in finding good jobs since the 2008 financial crisis. Older women who were laid off have a very hard time finding employment and steady jobs, as this report by Patricia Cohen in the NYT shows. Age, lack of internet skills, shifting networks, caregiving responsibilities and time off taken to care for children, all have worked against older women over 50 years. A study by the Federal Reserve Bank of St Louis shows that compared to 2006-2007 before the financial crisis hit when about a quarter of the unemployed for women over 50 years were unemployed over 6 months, by 2012-2013 the jobless women for more than 6 months had gone up to about half of the unemployed women in this age group.

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Poetry of migrant worker Xu Lizhi at a Foxconn factory in Shenzhen, China.

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Two weeks after his election Donald Trump says the U.S. will not join the Trans Pacific Trade Agreement during his term in office. Barack Obama took seven years to negotiate the trade agreement which was opposed by trade unions, the auto industry and was unpopular in the midwestern U.S. because of the impact of trade in hollowing out the manufacturing sector. Here Frank Sieren of the DW.com points out that the agreement was not really about trade, as most of the gains of trade had already been realized according to experts. It was part of the "pivot to Asia" to maintain American dominance in the region, says Sieren. After China pulled together some Asian and European countries into its trade agreement, the Regional Comprehensive Economic Partnership (RCEP), the U.S. pushed for TPP as a counterweight to the China sponsored trade zone. China says it will try to integrate the countries in TPP into the trade zone it has sponsored. President Trump has said that the U.S. is better off negotiating agreements with each country and not getting into multilateral trade agreements. He fought the election campaign on the basis of the opposition to TPP and trade agreements that unfairly hurt American workers. This could have provided the 110,000 margin of victory in the states suffering from the hollowing out in manufacturing such as Michigan, Wisconsin, Ohio and Pennsylvania. A similar hollowing out in Ontario favored Justin Trudeau's Liberals against the Conservatives in Canada's election. ...

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Wall Street Journal reporters Walker in Berlin, Forelle in Brussels, and Meichtry in Rome, reconstruct the events during critical days after the indecision and failure to reach agreement during the July summit of eurozone countries. This took the form of intervews with leading players and over 25 policy makers. What emerges are accounts of how Germany's Angela Merkel, daughter of a Lutheran pastor, and protege of Eurozone founder, former German chancellor Helmut Kohl, handled the crisis. Merkel was widely criticized in the media for indecision. What emerges is an account of a leader who took decisive action at key moments in the crisis- leading to the formation of new governments in Greece and Italy taking action to improve finances, and negotiations with banks represented by the International Finance Corporation leading to acceptance by banks of a 50% loss on loans to Greece to reduce Greece's unsustainable debt burden. Merkel also worked with the European Central Bank's departing president Frenchman Claude Trichet and new president Italian Mario Draghi to resist French president Sarkozy's efforts to have the ECB assume responsibility for the crisis through large scale buying of Italian and Spanish bonds; which was opposed by German public opinion as a backdoor way of having German taxpayers assume responsibility for European debt. Shown are three critical moments when Merkel intervened. In October 2011, after Italian prime minister Berlusconi reneged on promises to make pension and other reforms to improve Italian finances because of political resistance. He survived a parliamentary no-confidence vote by one vote. Merkel took the lead on October 20, by directly calling Italian President Georgio Napolitano on the phone, to urge him to take action for forming a new government in Italy. The result was Napolitano talking with all political parties to form a new government, leading to the formation of a government by a non-political figure respected in Italy, former EU commissioner Mario Monti. A day earlier, on October 19, French President Sarkozy met ECB president, Trichet, at an event honoring him as departing ECB president in Frankfurt's Alte Oper concert hall. Trichet, Merkel and Sarkozy met in a side room. Sarkozy asked for decisive help from the ECB for large scale buying of Italian and Spanish bonds to lower yields, which had reached 7% on Italian bonds. Trichet responded that the ECB's charter did not allow it to finance governments, with the meeting ending in a shouting match between the two leaders. On October 21, EU and IMF inspectors warned that Greece's debt was reaching unsustainable proportions and austerity measures alone would not work, unless the bondholders, the European banks, took losses of 60% on their excessive lending to Greece. At this point France agreed to the German position arguing for this level of bondholder haircuts or losses, fearing the prospect of large future bailouts that would jeopardize France's triple AAA credit rating. The July 2011 summit accord had only provided for 10% in losses for bondholders. On October 27, at a meeting that went past midnight, Merkel and Sarkozy called IIF head Charles Dallara, who headed negotiating for the banks, to EU headquarters in Brussels. Merkel handed Dallara an agreement containing the 50% bondholder loss demand, and told Dallara- "This is the last offer." Merkel was saying banks would be left with nothing if they rejected it and Greece defaulted. Dallara called bankers and the IIF accepted Merkel's agreement. The final moment that October came on October 31, when Greece's prime minister Papandreou said he would call a referendum on the bailout provisions and austerity measures demanded by the IMF, the EU and the ECB. Bond markets reacted negatively to the announcement fearing a rejection and a Greek default. The Group of 20 leaders was meeting in Cannes, France on Nov. 2, 2011. Papandreou was asked to come to Cannes for a pre-summit meeting. Here Merkel told Papandreou- "the real question" for the referendum was, "Do you want to be in the euro, or not?" Days later Papandreou, lacking support in Greece from political parties and opposition inside his party, submitted his resignation. A non-political figure respected in Greece, former ECB vice president, Lucas Papademos, was appointed prime minister to head a Unity government. Polls after the appointment showed three fourths of Greeks said that this was "a positive step for Greece," with Papandreou's party getting only 11% support and the opposition led by Samaras about 20%. The criticism leveled at Merkel is that Germany should take responsibility for debt throughout the euro area through the issuance of eurozone bonds or the ECB buying large amount of bonds of Spain and Italy. Merkel faced strong opposition inside Germany and from the Bundesbank to this idea. The other criticism was based on austerity measures worsening the finances of Greece because of a lack of growth in the economy, which is true; yet Germany may see the situation in Greece as taking a long time to be resolved in any event because of excessive and faulty financial management. For Italy and Spain putting finances in order was a necessity, and austerity measures should lead to short term sacrifice but improve prospects for the long term by returning the economies to growth. Another criticism is the installation of governments that lack popular or electoral support. As the polls in Greece showed the Unity government there has far greater support and public opinion blames the politicians for the huge mess. In Italy, Berlusconi was widely seen as losing popular support when he resigned. And in Spain Mariano Rajoy, the newly elected prime minister, was elected with a huge majority in parliament following winning in local government elections. Merkel also held her own party, the Chrisitian Democrats together at the recent Leipzig convention. Mario Draghi, was elected with German support to head the European Central Bank. He has long argued for better management of Italian finances as head of Italy's central bank. Draghi was able to support Merkel with carefully planned and managed actions. First to reduce interest rates to support economic growth in a slowing eurozone. Following this with the ECB's Long Term Financing Operation in late December 2011, to provide unlimited loans to European banks at 1% interest for three years in exchange for a broadened list of collateral deposited at the ECB. In a final twist in this drama, Charles Dallara, who was a key negotiator for the U.S. Treasury in setting up the Brady Bonds- that converted bad Latin American government debt owed to U.S. banks in the 1980's into long term debt with large reductions in principal owed and lower interest rates. This was in exchange for guaranteed repayment with 30 year U.S. zero coupon bonds. Dallara was now a negotiator for the banks to reduce the chance of the very same bondholder haircuts that he had negotiated in an earlier period to solve the Latin American debt crisis. Other players in the drama were Axel Weber, head of the Bundesbank, Germany's central bank, who resigned after strong and outspoken opposition to the ECB's large scale purchase of bonds of Greece, Italy and Spain. Jens Weidmann, his protege, who replaced him. And Jurgen Stark, German representative at the ECB, who also resigned in opposition to Germany assuming responsibility for eurozone debt. ...

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Jerry Muller, professor of history at the Catholic University of America, offers some useful insights into the nature of inequality in advanced capitalist societies and other parts of the world, and a clear eyed way to tackle the problem of inequality. Tackling the problem should be done in a way that preserves the economic protections for the middle class and the poor which are needed for capitalism to work- unemployment insurance, Medicare, Medicaid, Social Security, Earned Income Credit, and the Affordable Care Act. Much of this system is already in place in advanced capitalist societies. Incremental gains in this area will be much smaller and it is important to recognize the need for strengthening the economic engine that supports these benefits, says Muller. Economic dynamism has to be preserved and nurtured with human capital deployed in the best possible way, and competitiveness of countries increased. Each country and society has to find its own way of achieving this. The family matters, and matters a lot in taking advantage of educational opportunity, says Muller. The culture of different ethnic, immigrant groups, also matter. These differences were present in earlier periods in the nineteenth and twentieth century and are likely to remain. Strengthening the pool of human capital and deploying it is essential to progress. In an earlier book "Adam Smith In His Time and Ours- Designing a Decent Society," Muller emphasized the importance Smith placed on the civic duty of citizens to promote the welfare of the whole society, and the importance of education, family and moral character, with no substitute for the "general prevalence of wisdom and virtue." ...

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In 2015 the new government of Antonio Costa took a U turn from austerity policies followed in return for a bailout from the European Union. This has helped Portugal achieve the highest growth in a decade coming back from a severe slump. Unemployment is cut in half with growth in the tourist industry, and investment in agriculture, construction, aerospace.  Traditional industries such as paper mills and textiles have invested in new technology resulting in a boom in exports. German companies Bosch, Mercedes Benz, and others have also invested in the country. Portugal has a good relationship with Germany and the European Union which has also helped attract foreign investment. Prime minister Antonio Costa says "too much austerity deepens a recession and leads to a vicious circle." Antonio Costa came to power in 2015 on promises to reverse cuts in income made by the previous government to reduce the deficit in exchange for a 78 billion euro international bailout. The government backed by left parties left out of government since 1974 with the collapse of the dictatorship, was able to increase public sector salaries, the minimum wage and pensions, over objections of the IMF and the German government. Incentives were given to small business in the form of tax incentives, development subsidies and funding. Budget balancing was achieved by cutting expenditure on infrastructure and other spending, cutting the budget deficit from 4.4% when Costa took office to 1%. A surplus is planned for 2020, ending a quarter century of budget deficits. ...

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Prof. Peterson of Harvard and Hanushek of the Hoover Institution, authors with Woessmann of the book "Endangering Prosperity: A Global View of the American School," offer some startling reminders about the importance of education to economic growth and incomes in countries. Simply by raising the math standards in the U.S. to the higher standards in Canada would raise GDP by three fourths of one percentage point. One advantage that the U.S. enjoys comes from its good university systems, open markets, rule of law, tax rates, and open immigration policies, which give it about two thirds of a percentage point in higher GDP growth per year. The estimates are from the authors calculations. For the period 1960-2009, a period of rapid growth in Asian countries Korea, Taiwan, Singapore and Hong Kong, higher test scores in math and reading compared to the wrold average as measured by NAEP test and PISA, have led to 2% higher GDP growth. NAEP shows only 32% of U.S. high school students proficient in math compared to 45% in Germany and 49% in Canada and 63% in Singapore. By contrast to Korea and Taiwan, Peru, Argentina, the Philippines and S. Africa have about 2% less in GDP growth because of lower scores compared to the world average....

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U.S. Federal Reserve chairman Bernanke, says the Fed will keep interest rates low till unemployment reaches 6.5%, as long as inflation remains at about 2%. If unemployment reaches 6.5%, and this is because more people are dropping out of the labor market, he will take this into account. If unemployment stays high the Fed indicated in its statement that it would tolerate a higher inflation of 2.5%, as long as the longer term outlook was for inflation to be at 2%. Bernanke said this doesn't mean monetary policy is on autopilot, because the Fed will watch conditions carefully and will leave room for flexibility- keeping an eye out for new asset bubbles that could develop, and monitoring labor market conditions and inflationary pressures and inflation expectations. If inflation falls well below 2%, or unemployment rate falls mainly because of people dropping out of the labor market, the Fed may continue to keep interest rates low. This policy was announced as U.S. fiscal cliff deficit negotiations continued in Dec. 2012 with one scenario being considered by both political parties being going over the Jan. 1 deadline before coming to an agreement. Bernanke pointed to this, saying "this is a major risk factor right now." The Fed's activist policy in economic policy has given financial markets and business a measure of stability not provided by government and Congress. Fed policy is to buy $40 billion of mortgage securities, and $45 billion of long term Treasury securities for each month in 2013. It will fund the purchases by adding reserves to the banking system, which is to say that it will print money to buy more bonds. This is a major decision by the Fed in that the Fed has shied away from unemployment targets in the past. Bernanke described this action as a new"automatic stabilizer" in the U.S. financial system- if unemployment rises investors know this pushes the Fed's interest rate increases further down the road and would drive interest rates down, if unemployment drops sooner than expected, investors anticipating Fed's rate increases would drive long term interest rates up, to keep stable growth....

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Prime minister Mario Monti responded with humor to the remark of former prime minister Berlusconi before the June 2012 summit of European leaders that he could unplug the Monti government, by saying that his government was not a home appliance. In August Monti's long intervew with the Wall Street Journal is published in which he says the Italian bond spreads with German bonds would be 1200 or something if Berlusconi was still running the government. Angelinia Alfano, of Berlusconi's party, the People of Freedom party, calls this "nonsensical" and the parliamentary whip calls this a "stupid provocation." WSJ's Alessandra Galloni intervewed the Italian premier. Monti's office says he called Berlusconi saying he regretted the "banal and abstract extrapolation of a trend in spread values, which was included in a wide ranging interview with the WSJ, was taken as a political consideration, which was not at all the intention."

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The 3 week old government in Italy, led by former EU commissioner, Mario Monti, announced a three year plan of 30 billion euros in tax increases, spending cuts, reform of pension plans, and efforts to boost growth. Monti said at a news conference that "Italians are to blame for our public debt, and we risk compormising everything we've accomplished in the past 60 years." Under the new plan retirement age for women in the private sector would be increased from 60 to 66 years by 2018, bringing it in line with retirement ages for men. Italy's Labor minister, Elsa Fornero, broke down in tears as she described the change, saying it was necessary to avoid "collective impoverishment." Italy faces the difficult task of refinancing $400 billion in short term debt coming up for renewal in 2012, just as bond yields for Italy have spiked to over 7%. Because Italy lacks an extensive day care system, women helped raise grandchildren after early retirement at age 60. Other changes were to impose a 1.5% one time tax on money repatriated back to Italy under a tax amnesty scheme setup by former premier Berlusconi. Action was taken against widespread tax evasion by banning cash payments above 1000 euros. Stimulus measures of 10 billion euros are designed to boost small business and reduce high youth unemployment running at 29%. Companies get tax breaks of 2 billion euros if they hire young people....

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France, Germany, Italy, Spain and Britain agreed to have automatic exchange of information for offshore accounts to fight tax evasion. Luxembourg agreed to join this group. The EU nation move follows the U.S. Foreign Account Tax Compliance Act of 2010 which requires foreign banks and entities to disclose accounts of U.S. citizens, in an effort to fight tax evasion.

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To correct misgivings in many quarters about Syrian refugees not finding a haven in Gulf states, this letter from the Cato Institute points out that the population of Syrian refugees living in the Gulf states including Saudi Arabia has gone up by 1.1 million by 2013 from the beginning of the civil war. He cites World Bank data showing 241,000 Syrians living in the Gulf states before the civil war. By 2013 that number is 1.4 million. For Saudi Arabia the figures are up from 111,000 to 1 million.

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Barley points out the resignation of prime minister Monti in Italy is not a cause for panic, as his likely successor Luigi Bersani, head of the centre left Democratic party which leads in the polls with its electoral alliance having about 43% support, has committed to following through with Monti's policies and committments to the EU. Berlusconi is not the factor he once was with only 15% support in the polls, and anti establishment parties opposing public corruption such as Beppe Grillo's Five Star Movement appealing to younger people have about 20% support changing the political landscape in Italy. Other factors favoring Italy- a lower level of debt redemption in 2013 of 158 billion euros compared to 200 billion euros for 2012 will lower Italian bond issuance, Italy's primary budget surplus, the Italian economy bottoming out, and credit conditions improving. Year to date Italian bonds have returned 19.5%, and he sees no reason for an exit from Italian bonds. If polls continue to show a committment to the policies introduced by Monti, Italian bonds will continue to be attractive for investors. By setting Italy on the path to restoring and strengthening governance Monti has removed a key element for volatility in Italian bonds....

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International Energy Agency estimates show the U.S. surpassing Saudi Arabia as the world's largest oil producer by 2020 because of the boom in shale oil production. The estimates are for 11.1 million barrels a day from the U.S. in 2020.

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A report released by the Organization for Economic Cooperation and Development (OECD) shows growing income inequality in 34 OECD countries. OECD Secretary General, Angel Gurria says: "The social contract is starting to unravel in many countries. This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that the greater inequality fosters greater social mobility. Without a comprehensive strategy for inclusive growth, income inequality will continue to rise." Countries with the largest ratios between incomes at the top and the bottom, are the United States, Turkey and Israel, roughly 14 to 1. Germany, Denmark and Sweden have ratios of 6 to 1, with their ratios up from the 1980's. Gaps in Chile and Mexico are at 25 to 1. The study covers the period from 1980 to 2008. Overall inequality went up by 25% in the U.S. from 1980. In 2008 the top ten percent in the U.S. earned $114,000, 15 times than incomes for the bottom 10%. The top 1% of Americans saw incomes go up from 1980 to 2008, increasing from 8 percent to 18 percent. The richest 1% having $1.3 million in after tax income, and the lowest 20% making $17,700. The trends have accentuated an increase at the highest end- the top 1% and top 10% of the people- and a sharp decrease for the bottom 20%, which can be grasped from the $17,700 and the $1.3 million, both at extreme ends. The study attributes the rise in inequality to a growing gap in wages for highly skilled workers as technology advances, a surge in foreign direct investment and a looser regulatory regime that reduces employee protections leading to wage premiums for financial jobs and smaller incomes for workers at the bottom. Income groups and professions and sectors that had the greatest influence in government were able during this period to get the greatest protection for incomes, and able also to maximize their incomes. Incomes in the financial sector increased dramatically in the last decade, as a result of deregulation leading to higher risk and speculative activities in the financial sector, leading to the financial crisis of 2008-2009. Financial crises further depress incomes at the lower end. Similiar income inequality trends can be seen for India and China. China has a Ginni coefficient of 0.5 according to researchers at Beijing Normal University, up from 0.3 three decades ago- a Ginni Coefficient above 0.4 is considered destabilizing. Another factor that played a part in these countries is corruption and lobbying by special interests for favored treatment of sectors or groups. Austerity measures taken in Europe and in the U.S. are likely to widen income gaps by depressing the lower end income groups, creating social unrest, especially in the absence of efforts to stimulate growth....

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So far the Italian government has already recovered $15 billion for 2011 in its fight against tax evasion. The fight includes an advertising campaign depicting tax evasion as anti-social activity and vigorous enforcement by tax officials and the financial police. Italy has already banned cash transactions to reduce possibilities for evading taxes. This problem is severe in Italy because the underground economy is about 17.5% of GDP. An estimated $150 billion is lost to the Italian treasury from tax evasion. As a result Italy has a chronic budget deficit problem and is not able to make necessary investments in improving competitiveness to keep up with other countries. This may be one of the lasting achievements of the new administration of Mario Monti, along with its efforts to change the way the public thinks about other issues including labor laws that place large burdens on small companies in hiring practices. Italians sense the need to change the way they think about taxes because this is one way to reduce the burden of austerity measures- higher tax revenues could enable lowering taxes. It would also enable investing in improving competitiveness that would the economy grow and provide the jobs to reduce the high unemployment rate among young workers. One of the lasting positive aspects of the eurozone crisis is the change in the way the people and society think about many issues....

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Hilsenrath goes over some of the troubling signs behind the postive job numbers for April 2014. Part time workers looking for full time work actually increased in April 2014 to 7.5 million. More individuals in prime working years of 25-54 dropped out of the work force discouraged and stopped looking for work, with the percentage for this group who are working dropping to 80.8% in April 2014. Wage growth and worker productivity was stagnant. Donald Kohn, a former vice chairman of the Fed, joins other economists who are puzzled by the lack of wage growth and the large number of long term unemployed behind the positive job numbers of 288,000 for April 2014.

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Matt Miller's stump speech as an independent candidate and his 7 proposals for Renewing America.

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Senator Patrick Toomey (Pa.) and Rep. Jeb Hensarling (Tex.) are lobbying Republican party members in Congress behind the scenes to accept $300 billion in taxes as the only way to get an agreement on debt reduction in the Supercommittee. This would be part of a plan that addresses entitlements, and changes the tax code to lower rates and reduce tax expenditures by closing deductions and loopholes. This is leading to an intense debate in the Republican party about the wisdom of a purely ideological position on taxes that does not take into account current realities, and risks letting markets take control of the nation's future.