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Andrew Ross Sorkin points out that investors are sitting on their hands and money is moving out of the stock market. About $171 billion has moved out of mutual funds over the last year, according to the Investment Company Institute. About $208 billion has gone into the bond market in the same period. There are now fewer long term investors and the market is dominated by professionals which increases the volatility. There is a lack of confidence in the economy, the same reason that businesses in the U.S. are sitting on $2 trillion in cash that could be invested, and for investors the feeling that the market is rigged to favor insiders. The Financial Literacy Group surveyed 878 students at 18 high schools in 11 states in the U.S. It found that three fourths of the students agreed with the statement: "The stock market is rigged mostly to benefit greedy Wall Street bankers."

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Renewed warnings about the bubble in housing prices in China. Earlier warnings came from Krugman, Lardy, John Taylor. This one comes from Nomura economists Zhiwei Zhang and Wendy Chen. Could the government's action to curb rising housing prices not be adequate leading to a financial crisis as early as 2014, is the question posed by Zhang and Chen. They cite the rise of housing prices by 84% from 2001 to 2006, before the financial crisis of 2008 in the U.S., using the Case-Shiller housing price index. One problem- the government statistics may have underestimated the extent of the bubble. China's official index shows housing prices rising 113% in major cities from 2004 to 2012. Zhang and Chen say this is much smaller than the actual rise because it includes older, lower quality housing property. They cite an academic paper that adjusts for this and finds prices jumping by 250% in the period 2004 to 2009. Another problem is that China's housing prices growth slows after government action but then resumes the growth, leaving the risk exposure at the high level as before. Because the local governments are tied up in the housing bubble the problem would hit the banking system. About 14.1% of the outstanding bank loans are to local government financing vehicles, and 6.2% to property developers, according to Nomura economists. The declining potential growth rate in China means there is less room for bad loans to be absorbed by hyper growth levels than in the past. Errors in policy can magnify the risk including loosening monetary policy and exacerbating the bubble at the wrong time. In the absence of errors the risks still remain requiring the sale of public assets to bail out local governments and banks. The argument made by Krugman and other economists has been that China is not immune to the risks of a housing bubble going bad, in any way less than Sweden, the U.S., Spain and other countries, requiring bailouts of banks....

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Francois Hollande is elected French president. Greek voters vote against the austerity measures by giving a majority of the votes to parties on the far right and far left.

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The Editorial Board of the Washington Post draws attention to the speculative bubble in housing in China, the policies for sale of land by local governments that fuel the bubble, the corrupt local officials, and GDP growth that reflects overinvestment in housing creating serious imbalances in the economy. The structure of the economic and political system which promote this overinvestment in real estate has also reduced the role of the Chinese consumer in GDP growth, and is preventing a rebalancing of the world economy.

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Andy Grove makes this passionate plea for the dignity of workers in America in 2010. It is worth reading in 2020 what this founder of Intel Corp and pioneering spirit of Silicon Valley has to say. Andy Grove of Intel says there is something seriously wrong when the unemployment rate in the Bay Area is higher than the 9.7% national average for the USA. American companies have added jobs like crazy in Asia, but things are sputtering back home. Hon Hai has 800,000 employees and makes most of the electronic and computer products for American companies. Grove says startups are not the answer, unless they scale up and create jobs the way Intel did starting back in 1968, with a $3 million capital infusion by investors. The move from the first production model to mass production is critical, as companies hire thousands of people. Innovation and scaling up have to go together. He makes his point clearly by pointing out that Apple has 25,000 employees. For every Apple employee there are 10 employees in China working on Apple iMacs, iPods, iPhones. And he adds that the same 10 to 1 relationship applies to other U.S. tech companies. And here Grove asks the tough question by first posing an answer. He says it sounds like- no big deal, we keep the high paying jobs, we keep most of the profits, but what kind of society are we going to have with highly paid professional workers and lots of people unemployed? And he doesn't mention that there are a lot more young people unemployed. He says the US has become very inefficient at creating tech jobs, and it would be a great mistake not to act decisively early on. And adds that the investments in such areas as solar power and electric car batteries have to be made early on to maintain leadership in these areas. Grove faults academics like Alan Blinder and others who say loss of manufacturing jobs and whole industries was no big deal. The U.S. has forgotten the value of manufacturing jobs. He wants to see America focus on jobs and rebuild its industrial base. And less of transferring engineering knowhow and new technologies overseas, technology that can help bring innovation and scaling up of factories at home. In his view individual companies doing their own thing, in a misguided fashion that jobs don't matter, is not the answer to the situation we face. The industrial economies of Asia, China at the present day, have focussed on jobs and technology, and scaled up. Grove reminds readers of the situation in America in 1932, when jobless veterans demonstrating outside the White House in large numbers were dispersed by soldiers with live ammunition and fixed bayonets. This makes him shudder at the very thought of it, and brings back memories of his early years in Hungary, as a young man in 1956. Are we listening? ...

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

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The critical exchange between oil companies and auto companies about who is at fault for the energy crisis. In one ad that ran last year, Chevron argued that "if automakers improved fuel economy across the board by just 5 mpg, we'd save over 22 billion gallons of gasoline a year." The criticism is also sparked by the high price of oil which is hurting sales of pickups and large SUV's that the automakers depend on for profits. One ad by Exxon Mobil shows a cartoon of a large SUV filling up at a gas station and hints that the problem rests with the automakers who have failed to build the kind of highly fuel efficient vehicles that are needed. The ad says that the average fuel economy of new U.S. autos has not gone up much in two decades, the small gains have been offset by the increases in the size and weight of vehicles.

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Spain's borrowing costs increase reaching a high of 7.180% on yields for 10 year Spanish government bonds. There is considerable uncertainty about the bad loans in Spain's banking system and fears that the bad loans could be much larger than previously expected. Consultants hired by the Spanish government of prime minister Mariano Rajoy are expected to report on their findings this week about the extent of bad loans.

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Krugman points out that the U.S. Federal Reserve's forecasts in March 2012 show the U.S. will experience low inflation and high unemployment for many years. These forecasts are in sharp contrast to the expectations in the equity markets based on an uptick for a couple of months of unemployment numbers. The Fed's own statements suggest the improvement in hiring may be temporary and a response to the overreaction in hiring in 2009-2010 to the financial crisis, and not a lasting improvement. The Fed pointed out that the long term unemployed are at about 40% of the total unemployed and the share of the population that is working in March 2012 has barely budged from 58% in 2009.

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A detailed account of the developments that unfolded for Bankia bank during and after the initial public offering of its shares, after it was put together from seven failing cajas savings banks with bad real estate loans made during the housing bubble. The procrastination and small steps taken to paper over the problems by the Spanish government and regulators during the last year of the Zapatero administration and into the first year of the Rajoy administration.

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Krugman points to some striking facts about China in 2011. Consumer spending in China is only 35% of GDP and has declined over the years. There are no signs of rebalancing the economy away from exports by increasing consumer spending. China's dependence on exports for trade surpluses is greater than ever. Beyond this there is another disturbing fact. With weak consumer spending and heavy investment spending at about half of GDP, Kugman raises the question where is all that increase in spending going? Real estate investment takes up about half of the increase in investment spending, as the share of GDP of real estate investment almost doubles compared to figures for 2000. Much of the rest of the increase Krugman attributes to firms selling to the construction industry. The speculative fever, the corruption at the local level, the shadow banking system which is not protected and unsupervised, the poor quality of statistics, suggest a bubble phenomena that may not be under control of policy makers, and risks damaging China economy and the world economy in 2012-2013. After all China's economic and financial planners and banks are no better than America's or Japan's, where asset bubbles burst causing serious damage....

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Mortimer Zuckerman, publisher of U.S. News and World Report, looks behind the unemployment numbers and points to U-6 the real measure of under utilized labor and of workers working part time because of a lack of full time work, and says this is at about 15%. Add the eight million who quit looking and it is 19%, says Zuckerman The unemployment rate of 8.1% does not reflect the eight million workers who have quit looking. The long term unemployed, workers unemployed for more than 27 weeks is at 40.7%, or 5.2 million workers. Fewer Americans work today than in 2000, even though the population has increased by 31 million. Only 96,000 jobs were generated in August 2012. Something is seriously wrong and the right steps have not been taken.

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Spain's central bank was lauded for macroprudential supervision before the housing bubble burst. Will China's central bank and financial authorites which have managed the housing bubble upto this point face similiar problems? Can China be the sole exception even as housing bubbles burst with wide repercussions in the U.S., UK and Spain? Nicholas Lardy, of the Peterson Institute of international Economics, says urban housing stock makes up 41% of Chinese household wealth in 2011. The same figure for the U.S. is 26%. Chinese buyers invest in homes because low interest rates on savings accounts cannot keep up with inflation. Real estate investment was 13% of GDP in 2011. Home ownership is a recent development in China, only since 1990, Chinese have never experienced large price declines. Household debt as a percentage of disposable income has increased significantly in recent years, up to 53.6% in 2011 from 31.3% in 2008, according to Lardy.

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Speaking to Cadena Sur, a Spanish radio network, EU Commission Vice President, Joaquin Alumnia said the EC will have plans to monitor the restructuring of each bank that gets EU funds. He said: "Whoever gives money never gives it for free. There will be people coming to Spain to make sure the money will be properly used."

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Banks in the UK are considering giving investment bankers allowances to make up for lower bonuses mandated by new EU rules. This is one of the mechanisms banks are considering to be able to pay competitively. EU rules do not limit total compensation making it possible to shift pay given earlier as bonuses to the new 'allowance' category. For instance a 1.8 million euro bonus might be dropped to 1 million euros and 800,000 euros given as an allowance. Such an arrangement means banks can adjust the allowance as markets and regulations change. Increasing fixed salary would mean effects such as higher pension costs. Most of the 35,000 higher level banking employees to which the EU rules apply work in London, England. The UK Prudential Regulation Authority has come out against the EU bonus rule and the UK has taken this up in a legal challenge at the European Court of Justice. U.S. and Asian banks are deferring parts of bonuses and paying in a mix of shares and cash.

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Von Mark Schieritz of Germany's Zeit Online describes the changes underway following the election campaigns in the U.S., and France, and the Brexit vote in Britain, all signalling the discontent of people left behind by the tech, capitalism, trade and globalization changes of the last two decades. The appeal of one time fringe politicians using racist slogans and divisive rhetoric to appeal to those left behind, appealing to people lacking intergenerational mobility, and without much hope for a better future, is a serious concern. People who are gullible enough, lack college education, or racially isolated so that they are not likely to look carefully at what is being offered in terms of programs and change of competing parties, and likely to overlook the hard and difficult road for corrective course of action, because of anger and pentup fears. Schieritz cites as part of this change the unanimously approved conclusion in its final declaration at the G-20 meeting in Chengdu, China- "The benefits of growth need to be shared more broadly within and among countries to promote inclusiveness." Yet this can be a sort of "too little, too late."  Bankers who are cited in an email going around Wall Street lack credibility with groups on Main Street, to people adversely affected by tech, trade and globalization changes that have been persistently ignored for over a decade, close to two decades. More convincing is the tone of Theresa May, the British prime minister's first statement outside 10 Downing Street- who spoke of the "burning injustices" and her determination to make this a top priority of her government. Still more convincing are the programs to invest $275 billion over 10 years in infrastructure put forward by the leading candidate in the U.S. presidential election of 2016, to provide easier access to public universities and colleges to those left behind, as a sure way to create new jobs and address intergenerational mobility. In fact every leading candidate had made the loss of upward mobility their central plank already in 2015, long before Trump and Sanders started their campaign. The real hope lies in western leaders Merkel, May, and Clinton, all keenly aware students of changes, all women by the way who have sensed the injustice and have the ability to come up with something new and promising for the future, after learning the lessons of the past. ...

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One of the quirks of the unemployment rate released by the Labor Department is that it is declining- declined to 8.1% from 8.2%, from March to April 2012- even though the number of unemployed may be increasing. When adjusted for the discouraged workers who would be working today in a more normal environment the unemployment rate today would be around 11%. Crucial in grasping unemployment numbers is the labor force participation rate- showing the number of working age Americans with jobs or looking for jobs- which is affected by the number of baby boomers retiring and leaving the work force, and by the number of workers who are too discouraged to look for work. The long term unemployed currently form about 40% of people unemployed in the U.S., which is quite high and cause for concern for Fed chairman Bernanke. Many of these long term unemployed it is feared will permanently drop out of the workforce, causing a drop in the productive potential of the economy and lowering economic growth. Already many have dropped out of the workforce, causing the labor force participation rate to decline faster than the gradual decline seen in the last decade as baby boomers retire. Between 2009 and 2012, a three year period, the labor force participation rate dropped about 2% to 63.6%, compared to the normal drop of 1.3% over a seven year period from 2000 to 2007. Combining the impact of the two trends, one demographic and the other a result of the 2008 global financial crisis and excessive risks in the U.S. banking system, leads analysts to to lower the longer term economic growth forecast for the U.S. to 2%, compared to the U.S. Fed's forecast for 2.3-2.6% growth....

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Car size shrinks as the Focus, Spark, Aveo, Cruze small cars attract attention at the 2010 International Auto Show in Detroit. The big change is that these small cars are following the European small car in being refined and sophisticated, with a lot of features. This isn't the Chevette that Americans knew in the sixties and seventies, and the perception of what is the right size and comfort is changing completely as a new generation of buyers brought up in a world of pc's, i-phones, and globalized cultures is in the driver seat.

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The U.S. Labor Department reported 120,000 jobs were added by private companies in March 2012. The U.S. government cut jobs by 1000. Manufacturing added 37,000 jobs, with a lot of these jobs in the auto industry. Health care, financial services and professional and business services added jobs. Retailers cut 34,000 jobs. Construction and transportation did not change. Average hourly earnings increased by 5 cents to $23.39, and wages increased by 2.1% over the prior year, still about the same as inflation; leaving workers with no real increase in incomes. The U.S. has to increase jobs by at least 100,000 jobs to keep up with population growth. March 2012 jobs numbers revealed what the U.S. Federal Reserve already knew when it pointed to weak growth in jobs ahead. It comes as the equity markets are sharply overextended after a couple of months of better job numbers. The unemployment rate declined from 8.3% to 8.2%, largely from fewer people looking for work.