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In China's state banking system larger banks will get more state support than the smaller banks. Smaller banks such as Everbright Bank and Bank of Nanjing have 20% of loans made to local government financing vehicles, this compares with 6-7% for larger banks such as ICBC, Bank of China, China Construction Bank, and Agricultural Bank of China. Because of the poor asset quality and high risk of such loans the smaller banks are likely to be the first to face trouble in a financial crisis.

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Intel is expecting 8-10% growth in its forecast for unit PC shipments for 2011. For the second quarter 2011 revenue of the Intel PC unit increased by 11% from the prior year. Two factors are enabling this growth. PC shipments in emerging markets are growing fast, with increases of 70% in Turkey and Indonesia in the second quarter. Profit margin is at 60.6%. Third quarter revenue growth was given by CEO Otellini at $14 billion, and the total revenue for 2011 is expected to show growth at the mid-20% range.

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AMR announces it will purchase 260 A320 planes from Airbus and 200 additional 737's from Boeing. This is the first order from Airbus since the 1980's. Airbus and Boeing have agreed to $13 billion in lease financing to fully cover 230 deliveries . AMR president Horton says financing has been arranged for all othe orders from 2013 to 2016 and for 80% of 2017. This is critical because AMR is still losing money. Its second quarter loss increased to $286 millon from $11 million the prior year. Total debt is at $17.1 billion on June 30, 2011 compared to $16.1 billon the prior year, and cash balance at $5.1 billion the same as prior year. The new order will help reduce fuel costs. They will use 35% less fuel per seat than the old MD-80 planes according to AMR CEO Arpey. The new engines on the aircraft deliveries of A320s and 737s in 2017 and 2018 will provide even more fuel efficiencies compared to the 737s and A320s for this model year. For this reason Standard &Poors says the large order and financial commitment by AMR does not affect its ratings. It said the order will result in an airline that is over time more profitable because of the fuel effiencies gained but also more heavily indebted. S&P estimates of fully adjusted debt are at $24 billon. For Boeing the order means a decision to go with a new engine 737 and not an all new model that would succeed the 737. The technology was there says Jim Albaugh, CEO of the Boeing commercial plane unit, but the production system was not clearly understood to get production to 60 planes a month and avoid delays. For Airbus the AMR order is a significant advance. Except for Southwest which has an all 737 fleet, AMR was the last holdout without any Airbus planes. And the decision by Boeing to stay with a new engine 737 means Airbus wil not have to worry about Boeing leapfrogging the A320neo, which is anew engine A320. ...

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Layoffs by Cisco, Borders, Goldman Sachs, Lockheed and other companies will lead to higher unemployment. With poor job creation levels the layoffs add to the problem.

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David Wessel says there are three hypotheses about the slow recovery with growth of 1.9% in the first quarter of 2011, estimated growth of 1.4-1.5% for the second quarter. The first, is that this is transitory, with gas prices, Japan's tsunami disrupting supply chians, and Europe's poor handling of the financial crisis. This he scores as wishful thinking. The second, that the stimulus was too small, the need for a second stimulus, or the related hypothesis of the large uncertainty hanging over business, including the debt ceiling negotiations, deficit etc. This he scores as more convincing, but one is not sure different policies would have led to a different situation. The third hypothesis is that the underlying diagnosis of the economy itself was hopeful but flawed and wrong. Hope about the housing market- which has been proved wrong. The same for exports, or consumer spending. Wessel cites Ken Rogoff and Carmen Reinhardt's new book on the afterperiod of financial crises and asset bubbles, with data going back to many historical periods showing that the periods following crises are difficult having protracted periods of slow or marginal economic growth....

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EU leaders, the ECB and the European Financial Stability Facility, in negotiations for a "selective default" for Greece. The ECB is persuaded to accept a selective default, with one option being to protect ECB from losses by the EFSF buying 50 billion euros of Greek bonds at cost price. Another concern of ECB about contagion is being addressed through a statment that this is designed only for Greece because "of its exceptional situation." A draft document under discussion by EU leaders has a plan for cutting the interest rates on Greece's bailout loans from 5.5% to 3.5% and doubling the repayment period to 15 years. EU officials see giving Ireland and Portugal the same interest rates on their bailout loans. The high interest rates and the shorter maturities made earlier plans unworkable. Private investors are encoraged but not required to exchange their old Greek bonds for new bonds with maturities of upto 30 years. Also being discussed is a buyback of Greek bonds at a heavy discount to face value at which they are trading. EFSF will also get new powers to make bailout loans on a precautionary basis. EFSF would also have powers to lend to eurozoe governments to help recapitalize banks and buy back bonds from other countries....

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Barney Frank, of the Dodd-Frank Wall Street Reform and Consumer Protection Act, is interviewed by the New York Times one year after the passage of the legislation. He says we did not punt anything, it was because the legislators couldn't get everything right that they set up the provision for extensive rule making. He would rather forget financial matters as they are not his strong point, he has learnt more about repos and derivatives than he ever wanted. Critics have pointed to the extensive rule making delegated to regulators in Dodd Frank as a major weakness. It makes Dodd-Frank as effective as the regulators want it to be, something that goes back to an earlier period before 2008 when lack of regulatory discipline led to the financial crisis. He gives the regulatory agencies CFTC and the S.E.C. good grades for writing some of the rules because of the difficult conditions they face. His main fear is the stalling by Republicans in Congress and efforts to weaken the law by crimping resources for the agencies. And he fears the Republicans with support from the banking industry see the 2012 presidential elections as an opportunity to reverse the legislation....

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U.S. President Lyndon Baines Johnson was committed to spending on a war overseas and domestic priorties for the Great Society program at home. Johnson struggled with Congress to meet the costs of both. He even suggested a 10% tax surcharge to pay for the war and domestic programs. Dallek says 79% of American opposed a tax increase in 1968. Republican Richard Nixon was elected U.S. president that year.

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Reeves says Reagan ever the imaginative politician seized on the idea of "supply side " economics of a not so well known economist Arthur Laffer. Ideas that were simple and appealing- you reduce marginal tax rates and generate higher revenues. This worked for some time with higher economic growth for a number of years, but the arithmetic of higher spending and borrowing and lower taxes would eventually lead to large deficits at the end of Reagan's term, just as price controls worked for awhile and then led to a surge in prices at the end of Nixon's term. When Reagan became President the deficit was 2.5%, when he left office eight years later the deficit was 5% of the economy. Interest payments on debt jumped to $169 billion in 1988, from $69 billion in 1981. Reeves says American politicians know so little about economics, to which it could be added, winning presidential and congressional elections is always a big part of the picture when it comes to economic policy. Which is why Nixon even with Milton Friedman as an advisor shifted to Keynesian policies of higher fiscal spending in 1971, and why Reagan turns to intuitively appealing and effective in the short term policies of having it all- higher spending, growth, and lower taxes. During the years of the two Bush presidencies and the Clinton administration the success of Reagan policies leads to a general sense as Vice President Cheney put it referring to Reagan and Treasury Secretary Baker's belief, that "deficits don't matter." Which leads us to the current situation where 2012 presidential election politics again frame the terms of the debate on deficits and budgets, only now the deficit is much higher and on a unsustainable path. ...

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U.S. President Richard Nixon adopted Keynesian policies to boost the economy after tightening monetary policy failed in 1970. In 1971 Nixon turned to higher fiscal spending to get the economy closer to full employment. He also adopted wage and price controls. By 1972 the economy had recovered, inflation was at 5.7% and unemployment at 4.9%, and Nixon won re-election. This was the only recovery in an election year since World War II. In international affairs Nixon's policy was to leave the Bretton Woods system and floating the dollar. With a new administration in 1974 inflation surged to 11% and unemployment to 5.6%, because wage and price controls worked only for a short period.