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Martin Feldstein on the U.S. economy in 2014 and the risks of the U.S. Federal Reserve tackling the economy on its own with monetary policy, without Congress taking on the task of policies to promote economic growth. Feldstein points out the 3.6% GDP growth estimate for the third quarter 2013 does not look that good considering that half of this is from buildup of inventory. GDP growth is about 2% as net result. With paralysis of Congress and the Executive branch the Fed's policy of huge buildup of long term bonds to reduce short term interest rates to zero and stimulate stock and home prices, he describes as the only game in town. The problem is that the size of the effect of increase in consumer spending from this increase in household wealth is small and not enough to contribute to significant GDP growth. The risks of this approach are that it contributes to destabilizing the economy as investors buy risky securities and bid up prices. He suggests a five year $1 trillion infrastructure development program, including defense, as a stimulus Congress should consider. Not the kind of stimulus that happened after the 2008 crisis. If not enough investment ready projects are available as in 2008 that will contribute to future growth, Congress should take another one year to prepare for this before moving forward. Debt reduction is key, and debt as a percentage of GDP should be reduced and set on a path to go where it was before 2008 to about 40%, deficits to below 2% of GDP. This should be done by slowing growth of Social Security and Medicare, and increasing revenues by limiting subsidies in the tax code that Feldstein as pushed for since 2010....

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The House bill on health care cleared the House Committee on Energy and Commerce with a vote of 31 to 28. Five Democrats joined all 23 Republicans. Compromises were reached with Blue Dog Democrats, centrist Democrats who had concerns about the cost of the health care overhaul. The bill will be taken up again in September after the August recess, when Congress will be faced with the task of recociling the House and Senate versions and reaching common ground on a number of proposals. Some common ground has already been achieved between centris and Blue Dog Democrats and Democratic members who support Obama's proposals. Among the changes on which consensus was reached in the House version: 1. Access Insurers will have to accept all applicants and will not be able to charge higher premiums because of medical history or current illness. All insurers will have to offer a minimum package of benefits, to be defined by the federal government, and nearly all Americans will be required to have insurance. Insurers will have to get prior approval from the government before increasing premiums over a certain amount. About 95% of Americans will be covered this time. The cost will still be approaching $ 1trillion over 10 years. Federal subsidies will be given to those who cannot afford health insurance and Medicaid coverage will be expanded. And the insurance will be made more affordable for the uninsured. Democrats also reached a consensus on creating some sort of government insurance plan or nonprofit cooperative to compete with private insurers. 2. Mobility And under this new plan it will be easier to change jobs as one would retains one's health insurance. This should actually help the job market, and help promote the mobility that is needed, now that jobs are shifting out of sectors like autos to sectors like energy. 3. Cost The Energy and Commerce Committee voted 47 to 11 to set aprocedure for the government to give federal approval of generic versions of expensive biotechnology drugs. By one estimate this saves $9 billion over 10 years. The Democratic proposals from the Energy and Commerce Committee would authorize the Health and Human Services Secretary to negotiate prescription drug prices for Medicare benificiaries. The agreement and consensus among the conservative, liberal and centrist Democrats, and Democrats with ties and connections to the health care industry was reached after intensive negotiations, and adoption of a package of amendments that helped bridge the differences they had. ...

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Dubai's sewage system is not keeping up with the rest of the sewage system. For homes not connected to the sewage system the sewage is transferred by tanker trucks and sometimes tanker trucks will unload the sewage on desolate streets outside of town. Also treated sewage water is used in sprinklers in public parks in Dubai but this water may ot be healthy or have a bad odor so some residents ask their children to stay inside when the sprinklers go on. So where is the $300 billion thats supposedly going to be spent in the next 10 yeas and where is the money thats being spent now going for something as basic as sewage systems to be inadequately funded and tackled? It also shows the imbalances in development that go on side by side in the developig countries. In the rush for western style living a lot of other things may be happening or neglected. In China basic labor rights, food and drug safety, and pollution of the nation's water system, and contamination hazards were left untackled or ignored as a lot of money went into new infrastructure and western style living for those able to acquire it in the cities. Thus the substandard housing with neglect of safety inspections, supply of shoddy materials for building and the corruption which made a lot of this possible, especially painful when it came to collapsed school buildings in the Sichuan earthquake, is a recent reminder of these imbalances in the developing countries middle classes making a rush to acquire western standards of living. In Dubai sewage is rising by 25% a year and one sewage plant that is 30 years old is all that Dubai has to meet its expanding sewage needs!!!...

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The Venezuelan government provides gasoline to people in the country at a few cents a gallon- almost free. Even Saudi Arabia, the Emirates and Kuwait which have way better financial balances and dollar reserves do not provide gasoline at such prices. The result is chronic shortages of basic parts and other imports because the government does not have enough dollar reserves for imports. Venezuela devalued its currency by 32% recently, making imports more expensive and pushing inflation up even higher to 28%. The problems it creates are excessive and wasteful use of gasoline, and free gasoline that then provides consumers money to pay for surging cost of everyday imported products. Nullifying any real benefits when shortages, inflation, dilapidated infrastructure and lack of development and jobs, are taken into account. The lack of capital to invest in the oil industry has led to declining production making the situation unsustainable. Yet neither party of Maduro or Capriles in the upcoming April 14, 2013 election, following the death of Chavez, supports ending this subsidy. Efforts to end the subsidy by president Carlos Andres Perez in 1986 led to riots and about hundred deaths in police response, and a coup by Chavez, then a military officer, a few years later. Under Chavez the subsidy was extended to the level at which gasoline is about 4 cents a gallon. Compare this with the price in neighboring Colombia at $4.72 a gallon, and Brazil at $5.40 per gallon. Consumption per capita in Venezuela is excessively high, about seven times per capita than neighboring Columbia. The investment in infrastucture is hobbled by lack of capital, the capital Caracas dilapidated, and no major infrastructure projects taken up by the government. It costs Venezuela 8.6% of GDP or $27 billion to pay for the excessively high subsidy, compared to 3.2% of GDP going to healthcare spending and 5.1% for education. In comparison Indonesia, another developing country, uses 2.5% of GDP or 21 billion for its subsidy for a population of over 200 million. It is not that a fuel subsidy is provided, but the entitlement to free gasoline that makes Venezuela the lone exception. There is a reason why prices in Brazil and China, large developing countries, price gasoline to motorists at over $4 a gallon- to discourage excessive and wasteful use, and release scarce capital for infrastructure development, building dollar reserves for imports of machinery and equipment, and other uses in industrializing economies. Compare Venezuela with Bolivia under the socialist government of Evo Morales. In 2010 Bolivia increased its price of gasoline by 80%. The price in 2013 is about $2.00 per gallon. Morales cushioned the increase by increasing salaries in the health and education sectors, armed forces and police by 20%, and increasing prices of locally produced wheat, corn and rice by 10%. Morales said he did this to reduce state subsidies of $380 million for $660 million in gasoline imports, of which $150 million was siphoned off by smuggling gasoline to neigboring countries. Incentives were provided to oil companies to produce gasoline in Bolivia to reduce imports. ...

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Britain's Serious Fraud Office takes up the investigation into improper rate fixing for LIBOR, which could lead to criminal charges.

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The ongoing investigation into the manipulation of LIBOR interest rates could affect the likelihood of Paul Tucker becoming the next head of the Bank of England, and raise questions about the responsibility of other bank chiefs involved in the manipulation. Guerrera says regulators should shoulder some of the responsibility.

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Leonhardt says that there is little reason to think that the flatter rates are better always. With the need to finance Medicare and health care for all, the government can use the extra dollars from taxing the very wealthy, the very rich in different tax brackets. The top bracket in 2008 started at 357,000, and you paid 35% whether you made 400,000, or $4 million, or $40 million. So basically the upper middle class was lumped in with the extremely wealthy. And considering the cost of college tutions for 2 or 3 kids, the upper middle class is only middle class. It makes sense not to lump the two together. Considering that there has been a lot of wealth accumulated at the the very high end, it would also reduce inequality, generate tax revenues for health care, and not have much effect in the incentives for generating economic growth. It is something he says the Obama adminisstration may and should consider.

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Alan Blinder, Princeton University professor and former vice chairman of the Federal Reserve, says the biggest reason for the growing deficit in the years out to 2040 is because of increases in health care spending. Its not that there is runaway spending in other areas. He cites CBO projections that show other costs stable relative to GDP from 2015 to 2035 and declining. This is why healthcare spending is at the heart of the problem. And why tackling the deficit has a lot to do with reducing healthcare cost increases.

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Neil Irwin of NYT provides some counter intuitive ideas on U.S. Fed interest rate policy. He says it can't be take as a given that the Fed will raise rates in 2017-2018. This depends on how much punch there is in the Trump economic policies for stimulus, and for infrastructure spending, tax cuts. He cites Senate Majority Leader McConnell who said he would like to keep "tax reform revenue neutral." Getting large spending and pushing up the deficit is likely to run up against Republicans in Congress who have for 8 years opposed large spending increases and large deficits. Trump has given few details about his stimulus or infrastructure spending plans. He says the scale of the spending might not match the talk. Irwin cites JP Morgan Chase economists who have kept their forecasts for GDP growth just under 2% for 2017 and 2018. And he points out that even Trump appointees at the Fed might act independently. The Fed might look at being cautious considering that increased trade tensions with China, and the unpredictability of a Trump administration could hurt growth. Irwin does not mention the uncertainty in other areas such as policy towards Russia on which the Republican party and Congress have very different views than Trump, tensions over Taiwan, that can also affect growth. ...

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Baucus is a six term senator from Montana. He won easy re-election in the fall. Question are being raised about the extent of fundraising Baucus is doing even as he is conducting the negotiations for writing up the health care reform bill. He continues to accept donations from health care executives and health care companies. Public Citizen advocacy group says that Baucus's fundraising in the middle of the health care debate is very troubling. As chairman of the Senate Finance Committee, Baucus is a key person in the health care legislation development.The Washington Post says health care companies gave Baucus $1.5 million in 2007 and 2008 as he began to hold hearings for the health care reform debate. The health care industry gave $170 million to federal lawmakers in 2007 and 2008, with 54% going to Democrats, according to the Center for Responsive Politics. Senator Grassley of Iowa, the ranking Republican in Baucus's committee received more than $2 million from the health care industry since 2003. House Ways and Means Committee chairman Rangel took in $1.6 million, and ranking Republican Dave Camp $1 million. Clearly any new health care legislation will fall short on achieving the critical reduction in health care costs that is needed to help the U.S. economy as long as lawmakers are beholden to lobbyists and donations....

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Jessica Todd, a USDA economist, says in a report that about 20% of the improvement in the diets of people surveyed comes from Americans eating out less at fast food places or restaurants. And this particular improvement she says is from an increased awareness on nutrition in picking out food, more choices available, and more nutritional information available to buyers. About one third of U.S. adults or 36% were obese in 2009-2010, according to the Centers for Disease Control and Prevention. This is a large increase from 15% in 1980. Studies show this is now declining gradually with increased public awareness of the risks of poor eating habits, including risks of diabetes.

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Germany went through a period of stagnant growth and persistently high unemployment leading to reforms of the welfare system and entitlements under the Schroeder administration. The reforms led to lower unemployment benefits and an effort to get the unemployed take up jobs. Instead of unemployment benefits that amounted to half the salary indefinitely, unemployment benefits ended in 12 months under the reforms, and workers were forced to take up jobs or dig into their savings. The cuts to benefits led to more of the unemployed taking jobs that were not their first choice with lower incomes. Unions agreed to defer wage demands and wages remained relatively flat for a long period. The "kurzarbeit" system of government subsidizing employers to retain workers during economic downturns, helped cushion the workforce from ups and downs in the economy. Unemployment which was in double digits a decade ago, is now 6.1%. The system still preserved some other aspects of generous benefits- parental leave of 14 months at two-thirds salary, vacation time and publicly sponsored health insurance. Recent changes include raising the retirement age to 67 from 65. The Organization of Economc Cooperation and Development estimates that the 200,000 jobs saved in Germany during the recession of 2008-2009 cost the government $7 billion. Government funds helped companies retain workers by paying a portion of worker salaries and averting layoffs.This comes to $35,000 per job. Compare this with the $38.9 billion allocated to a loan program at the Energy Department under the U.S. stimulus. 8050 jobs were created under this program according to the Washington Post- for the money spent so far in Sept 2011- 2 years into the loan program, of $19.3 billion. This comes to $2.4 million in government guaranteed loans per job. The Energy Department says that 33,000 jobs were saved under the $5.9 billion that was given to the auto industry under this program for investments in manufacturing to improve fuel efficiency. This comes to $178,000 per job. The Energy Department and Congress estimated a 5%-10% loss on the $38.6 billion loan program for loans that go sour, such as the Solyndra solar company $535 million loan. This comes to $1.9 billion at 5% loss and $3.8 billion for a 10% loss. The purpose of these figures is to show the cost of programs when the programs fail to achieve job goals or produce too little for the investment. The $3.8 billion loss under the program is over half the $7 billon Germany invested for the 200,000 jobs saved as estimated by the OECD. That ranks as a far superior investment than the Energy Department program. For the U.S. there are aspects of German reforms such as "kurzarbeit" that bear emulation, with serious questions about the effective use of the U.S. stimulus funds. For the rest of Europe the stingier unemployment benefits, raising the retirement age to 67, and other reforms send a different message. From the average German the message is: we made the tough changes, the rest of Europe cannot expect Germans to pay higher taxes while they put off similiar changes. Italy needs to change its retirement age, just as the Germans have done. As Chancellor Merkel puts it: "People in countries like Greece, Spain, Portugal shouldn't be able to retire earlier than in Germany. It's important for everybody to put in effort to make it roughly equal. Germany will only help when others really make an effort." Which is why Greece, Spain, Italy, even France are faced with making serious changes. This isn't stalling when it comes to euro bonds, from the German perspective. And it isn't about the lack of committment to the idea of a European Union, as all major political parties in Germany, the CDP, the SDP and the Greens, all strongly support the idea of a European Union. ...

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The 2011 State of the Union address by President Obama. A calculated effort to move the debates that will frame the future election to a different place. He emphasizes the importance of investing in the future, in global competitiveness, through spending on education, infrastructure, alternative energy and other projects. But there was little in the way of specifics for reducing the high jobless rate which stands at 9.4%. And little in the way of specifics of how the investments in the future for global competitiveness and infrastructure spending are to be achieved. Especially when the fiscal imbalances are growing after the compromise on the Bush tax cuts and the passage of health care legislation. The Washington Post says that a majority of Americans approve of his overall performance, yet they are generally negative in their evaluation of how the Obama administration and President Obama has handled key issues relating to the economy. And this is more so among independent voters who will be crucial in the 2012 elections....

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A report by the Longevity Science Panel for the UK says the life expectancy gap between the richest and poorest neighborhoods in England has increased since 2001. In 2001 this was 7.2 years, by 2015 this increased to 8.4 years. The government points to cancer rates, the Longevity Science Panel report authors say income inequality was the main factor. To do this report LSP looked at data from the Office for National Statistics for 2015, which divided England into 33,000 residential areas and rated them on factors ranging from income levels, health, education and crime. This report points out that men and women from the bottom fifth were 80% more likely than the top fifth to die in any given year. 

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Steep drops in economic activity and loss of so many jobs is the reason why total lockdowns are not the best solution as seen from the experience gained by August. Selective lockdowns are now being applied across France, Germany and Britain in specific areas. About 400 million jobs have been lost, 13 million in the U.S.  Hospitals overwhelmed in northern Italy by March is what made the total lockdowns necessary.  These steps for total lockdown were made with very little known about the pandemic and the need to protect hospital and health systems. These decisions at that time are not questioned today. It is that now  with some treatments found, a vaccine close to being introduced, hospital system protocols established, health ministries and departments organized to respond quickly, and the public awareness at high levels,  it is now possible to impose these selective lockdowns effectively and quickly. As the WSJ now says the CDC had botched the initial development and distribution of tests in February- see WSJ analysis and our Lyrarc links of how 3 crucial weeks were lost in Feb with failure of the CDC and HHS in testing- making test and contact trace strategy window to be missed. China had not cooperated in letting a U.S. team quickly in the early days of February creating more uncertainty and risk. In that situation total lockdown suddenly became the reality to avoid a catastrophe. Today a carefully applied selective application of solutions can be done and is seen as the right way to protect jobs and livelihoods of people. ...

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Lobbying by the pharmaceutical and health care industry and U.S. president Obama's promises to the industry as part of his shaping the health care law.

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The U.S. Fed, America's central bank, barrs bank buyback of shares and limits dividend payouts to quarterly profit. The Fed does this as it warns banks they could sustain heavy losses of $700 billion for soured loans if the economy is slow to recover over several quarters, and unemployment remains high. The Fed's latest stress test for banks included the impact of the coronavirus epidemic. At this time the Fed says banks are healthy and this is protective action to keep the banks in safety.

Another sign of the changes taking place in finance and banking- swift action by the U.S. central bank leadership to stop early any potential improper behaviour of banks to do debt buybacks or dividend payout not meeting rules related to profit. 

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The U.S. market looks like it is becoming the kind of maturing market that Japan and Germany have become for automobiles. Germany and Japan saw sales peak at high levels and then decline. And they have been declining steadily for several years. The US has a growing population and demographics because of immigration compared to Japan so there wil be continued demand for new cars. However since 2000 carmakers have introduced so many price incentives, interest free loans, and other ways of pushing sales that sales have continued to climb to unsustainable levels. All through the 1990's sales were in the 15 million range, then after 2000 sales climbed, except for the short period of uncertainty after 9/11/2001 Trade Center bombings. Sales climbed up to 17 million and stayed at these higher levels till the recent crises in 2007 saw a drop in sales and a shift to smaller fuel efficient cars. GM was offering 0% financing for 5 years through its Keep America Rolling campaign in the aftermath of 9/11. By 2005 automakers were offering as much as $8000 in discounts on pickup trucks. Employee pricing enabled regular customers to buy at employee prices. The Big Three sold to rental fleets unsold cars, so much so that by 2005 25% of all vehicles made by GM and Ford went to rental fleets, to rental companies in which these companies had large ownership stakes. For GM this became part of strategy. Fixed costs were high and the UAW contracts made it difficult to layoff workers, a jobs bank in which layed off workers could remain till rehired was itself quite costly as money had to be paid to the workers in the job bank. With this kind of inflexibility in the labor market GM could only spread all the fixed costs for its aging workforce which required pension payouts to retirees and health payments to retirees, by selling more automobiles. During this period of inflexibility in labor, and the legacy costs of previous boom years since the 1950's with generous UAW contracts, GM and Ford pushed sales to unsustainable levels; without considering the furture implications of this short term strategy. Another way this could hurt is by pulling sales in future years into current years because of interest free financing or huge discounting which probably happened in 2004-2005 and is seeing a payback today in 2008. At the peak in 2005 carmakers were planning further expansion of SUV capacity or expansion of other carmaking facilities. Gas was still not at the high levels of today. In 1999 gas cost $1.15 cents a gallon, and it was a little higher than that, but nowhere near what we are seeeing today. These new plants are coming up just as the sales are dropping dramatically, the half million SUV's sold in 2008 is about half the sales in 2003, enough to fill 2 plants when many more plants are being built or opening. The new capacity of 4 plants capable of producing 1 million vehicles is looking like a big mistake, like the new Toyota Tundra plant in Texas. Some of the new carmaking capacity is a Toyota plant in Tupelo, Mississippi, a Honda plant in Indiana, and a Kia Motors plant in Georgia. All this means a big drop in factory utilization rates. GM has 2 plants making full size SUV's. Later this year GM will cut production at these plants and at 2 plants making pickup trucks to utilize them only for 1 eight hour shift a day. Toyota has 1 full plant of excess capacity, not including the plant opening in Tupelo, Missisippi, making it likely to be down in utilization very significantly as well. Nissan is only using 65% of capacity at plants in Canton, Mississippi and Smyrna , Tennessee. And these utilization rates reflect the impact at the early stage of the housing crisis, consumption spending is only now beginning to bite, and unemployment is still to take a hit, so th economic recession immpact is still not reflected in auto sales. Even now GM and Chrysler cling to the hope of a sales pickup in late 2008 and in 2009, which is looking less likely by the day. J.D. Powers survey show the North American auto making capacity at 18.7 million cars and production this year at 14.1 million. This means the automakers have disastrously misjudged the auto market, and the role their own actions in pushing sales have affected the market in inflating the sales numbers beyond what is a sustainable sale increase. When credit tightening and lower consumption spending, housing crisis, and higher unemployment all hit the US in full impact by 2009 the situation is likely to worsen significantly and could become a disaster. ...

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Letters to the editor on the excessive cost of asthma medications, and the faulty permitting of re-patenting of asthma inhalers as a result of a environmental law related to ozone layer. The re-patenting resulted in the asthma inhalers commonly used being priced much higher than before. The letters from doctors and nursing practitioners details their alarm at what is happening in asthma inhaler pricing that hurts the middle class and the poor in America.