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Global imbalances in savings had alot to do with the current economic crisis, says Prof. Richard Portes of the London Business School, and president of the Centre for Economic Policy Research. See graph that shows net cross border flows doubled from 1997 the year ogf the Asian financial crisis to 2008. By 2008 these cross border flows from Asia to the West reached 3% of global GDP. This says Portes was what was ultimately the cause of the crisis, as it enabled bankers to be reckless and mortgage lenders to be reckless with all the extra money in the American banking system.

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The Bernanke Fed's decision on Sept. 16, 2013 to continue the pace of bond purchases is seen with relief in emerging markets and taken positively by equity markets worldwide. The Fed's decision is based on evidence of sluggishness in the economy and in the pace of job growth, as well as the likelihood of more political uncertainty about the budget because of sharp differences between Democrats and Republicans.

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Puerto Rico has issued $72 billion in debt, about 70% of its GDP, by offering tax breaks to wealthy investors. It is now faced with a declining population, a shrinking tax base and a large public sector. Puerto Rico's inability to pay its debt will affect hedge funds which hold its distressed debt. Mutual funds have reduced holdings of Puerto Rican debt as its debt was reduced to junk status. Commercial banks hold insignificant amount of Puerto Rican debt. Municipalities in the U.S. have improved their financial situation by cutting spending and increasing taxes in recent years, reducing any contagion effects. Only 13% of Greece's debt or about $47 billion is held by private banks. Over 80% of the debt is held by the European Central Bank, the European Financial Stability Facility, the IMF and European governments. The ECB's quantitative easing program will support countries such as Spain, Portugal, and Italy, and other countries during the now likely default of Greece in 2015. This will limit the contagion from Greece. China's debt situation and excessive rise in stock market and housing prices poses more risks because of the size of the Chinese economy, and through the effects on commodity exporting countries such as Canada, China and Australia, and the economy of Hong Kong. China has large reserves which it could use to bailout banks if the situation were to arise, and could cut interest rates. China's financial system is relatively closed reducing direct effects of contagion. Ip says outsiders have placed too much confidence in China's leaders to manage a crisis, and in the condition of the financial system, because it is opaque, lacks transparency, statistics are not reliable, and not enough is known about the true condition of the economy....

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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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The household debt to income ratio is 1.62 in Britain compared to 1.42 in the USA and 1.09 in Germany. Britain has a record 1.4 trillion pounds of debtor about $2.8 trillion more than the country's gross domestic product. Ther is a culture of debt financed spending in Britain which older generations are not familiar with. Even the USA which has seen a debt financed spending spree is behind Britain where the spending culture is really prevalent with borrowing at its height to support consumption. Personal debt in the USA including mortgage debt is $13.8 trillion slightly less than the $14 trillion GDP. A decade long housing boom and strong economic growth has created consumer confidence and a virtuous cycle of investment in infrastructure, higher consumption, low unemployment and better incomes and growth. Now this virtuous cycle may be coming to a close. Interestingly Germans were much more reluctant to be the free spenders than the British. The average Briton has 2.8 credit or debit cards more than the other countries in Europe. And the home equity and borrowing on home equity with rising home prices, easy credit card debt, and low interest rates all have created a false sense of security which may not last long with rising rates and declining home values, and tighter credit conditions....

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Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, provides insights into the economc problems facing Brazil in 2016. He points out that 41% of Brazil's GDP goes into public spending by local, regional and national government, crowding out private investment. The tax burden is high at 35% of GDP. And under the Rousseff administration budget discipline has been lacking. Compared to the Lula government running consistent surplus Ms. Rousseff ran a deficit of 10% of GDP. With a large welfare state, the budget has rigidities, says Sharma, with public pensions increasing since 2000 from 3% to 7% of GDP, and heavy state spending tending to push interest rates up and increase borrowing costs. Retirement age is 54 and 52 for men and women respectively, and pensioners get 90% of salary, compared to 60% in advanced countries. The decline in commodity prices has hit Brazil hard because 67% of exports are from commodities such as soyabeans in 2016 compared to 46% in 2000. Manufacturing accounts for only 11% of the economy. As long as high commodity prices supported the lavish welfare and public spending Rousseff's popularity remained high at 60% as recently as 2013. The collapse of commodity prices has hurt the economy leading to growth of negative 3.5% in GDP. Rousseff's popularity hit a low of 11% as public protests over poor public services, were followed by a series of corruption scandals. Even if impeachment led to new leadership the problems are deep rooted, with neglect of education, healthcare, public services, and manufacturing industries, and heavy public spending no longer supported by high commodity prices. Some of the problems existed in the boom years of the Lula administration, only covered up by the commodities boom cycle, and becoming evident in the down cycle of the Rousseff years. ...

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The 10 year Greece government bond yield was 9.183% on May 14, 2013, according to Tradeweb, declining from a high of about 30% during the peak of the eurozone financial crisis in 2011.

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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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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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The impact on stock markets around the world of the protests in Egypt. The Nikkei fell 1.5%, the Kospi index fell 1.5%, on Jan 31, and the Dow Jones average fell 166 points on Friday Jan 28, 2011. Oil prices increased by 3.7% to $89.34 during the week of protests in Egypt. The Bipartisan Policy Center in Washington estimates a 5% increase in the price of oil takes away $5 billion dollars from the US economy. Sam Stovall, chief investment strategist at Standard & Poor's Equity Research, says that a boxer rarely gets knocked out by a punch he is expecting, and this could be what starts a decline after the market fought off fears from sovereign debt crises in Europe and interest rate increases in China. What makes Egypt significant? The Suez Canal is ony a 1000 feet wide at the narrowest point. Supertankers carrying oil do not pass through the canal but rely on smaller vessels and on the Sumed pipeline. About 2.9 million barrels of oil a day, 2.6% of global oil production passed though the Suez Canal and the pipeline according to the US Energy Department. Because prices are determined at the margin this is a lot of oil, especially considering the global spare production capacity is only 2.5 millon barrels a day. The immediate impact would be on Europe which gets much of the oil refined in the Middle East and shipped using the canal and pipeline. Egypt is also a major importer of wheat, importing more wheat than any other country. Any increase in imports to placate consumers would increase wheat prices. Already wheat prices are impacted by floods in Australia, a long drought in Argentina, and forest fires in Russia. Inflationary impact of rising food prices has been felt in China, India and other countries....

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Karen Eliott House was a former publisher of the WSJ. Now with WSJ in Murdoch's News Corporation's hands, she is a fellow at Harvard's Belfer Center. Here she points to the diverging situation between the USA and Saudi Arabia. She thinks the US cannot protect the Saudi monarchy (which dates back to Abdul Aziz and his support from President Roosevelt first by recognition of the new state of Saudi Arabia in 1932 and support during the war), from its domestic challenges. One of these domestic challenges is changing demographics as the young or people below 15 years age make up 40% of the population, rising unemployment, and pressures for modernization which the monarchy has done little to respond to, and the lack of democratic forms which would give people a chance to vent their feelings. For the U.S. the frustration is that the Saudis have done little or can do little for the USA in the way of moderating oil prices as they move still higher, because of speculative trends, decline of production in its own maturing oil fields, and needs to finance huge new plants and cities to provide employment to a growing population. In fact Libyan oil officials has been more of a moderating influence recently than the Saudi oil officials. So it appears that what Karen is saying is that the Saudis are pursuing their own interests in their region and the wider region that includes South Asia and Northern Africa, and the US is pursuing its own interests, which at this time are not as clearly defined, except securing oil supplies and protecting Israel. The 2 countries USA and Saudi Arabia are going their diverging and different ways in a way that is irreversible....

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Makes several critical points about the chinese stock market. First its low in transparency, very little accurate reliable information is available to investors. A gambling type atmosphere characterizes the appearance of brokerage houses and places where people invest. This gives room for part superstition and part good luck focus on lucky numbers such as the number 8 and unlucky numbers such as the number 4. It is a very immature market with 60-80% of investors who have no understanding of financial concepts. Second its a very large number of people who are entering the market every day, about 100,000 investor accounts are opening every day. As interest rates are so low in China more and more people are putting savings into the stock market. This adds to the 100 million investor accounts already open. At this rate there will be 36.5 million new accounts a year from now and 173 million investor accounts in 2 yearsand most of them caught up in this gambling type atmosphere with so little reliable information available about each stock in addition to the other problems China faces of corruption, and possibilities of deception in stock dealings and companies. With daily stock trading at $50 billion, this could grow to double that and the kinds of numbers that could lead to a crisis if stocks take a tailspin. With the huge liquidity in the system from China's large trade surplus with the US this problem can grow rapidly and get out of control. See other articles in May on this issue and on negotiation with the US on currency revaluations....

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Coorodination, forbearance and multilateralism are three ways to keep economic nationalism from disrupting a global trading system that has benefitted all countries. Even the small moves to help home countries like the the move for US steel in the American stimulus projects, and the demonstrations supporting "British jobs for British workers", and other steps that quietly find their way into individual countries efforts to protect their home industries and jobs, can over time build up into something that would exaggerate the size and extent of this economic downturn. Forbearance and leadership from the US government on this issue and by leading developed countries is vital. So is the effort to develop a coordinated effort through close consultation and joint monitoring of progress. And equally important is multilateralism which works to help emerging countries hit hardest, and help prevent millions from sinking back into poverty, thereby destroying the hope and aspirations that had propelled the global progress in improving living standards....

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Transcripts released for the U.S. Federal Reserve's Federal Open Market Committee (FOMC) 2006 meetings show Fed chairman Bernanke and then New York Fed president Geithner ignored the risks of a hard landing from the mortgage and housing bubble. Geithner even went so far as to say about retiring chairman Greenspan, who also ignored the risks from the bubble and set the tone during his long period as chairman at the Fed: "I'd like the record to show that I think you're pretty terrific, too...And thinking about the probabilities, I think the risk that we decide in the future that you're even better than we think is higher than the alternative." In evaluating the risks facing the U.S. economy in December 2006, at the height of the bubble, Geithner stated: "The current weakness in the economy still seems principally to stem from the direct effects of the slowdown in housing on construction activity... The softer than expected recent numbers don't argue in our view, for a substantial reassessment of the risks in the outlook." The Fed chairman, Ben Bernanke, said at the first meeting in March 2006: " Strong fundamentals support a relatively soft landing in housing... I think we are unlikely to see growth being derailed by the housing market." When a Fed economist gave a presentation in March 2006 on the risks in Iceland, Bernanke said- "We'd like a full report on the Icelandic," at which point the rest of the group erupted with laughter. Iceland defaulted on its debts in 2008. Warnings about housing by Fed Governor Susan Bies were ignored by Bernanke and Geithner. Two highly leveraged Wall Street investment banks collapsed in 2008- Bear Stearns in March and Lehman in September- from the impact of the bursting of the bubble in housing and mortgages. When they collapsed these banks were leveraged at about 30 to 1, as most of the warning signs had been ignored by regulators including the Federal Reserve....

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Pearlstein argues that the US and the Obama administration achieved most of its goals, even though the Europeans took the credit. On regulatory reform, Geithner's regulatory reform proposal he says, could well have been written at the French Finance Ministry, as at the US Treasury. And it gives Obama ammunition to prepare, as private equity, hedge funds, and banks try to water down his proposals for regulatory reform. By having member countries commit to adding $850 billion to the resources at the IMF, and regional development banks to provide help to countries in serious difficulties- and giving instructions that the money can be used not only for debt rollover, bank recapitalization and balance of payments support, but also for stimulus spending, infrastructure investment, trade finance and social support- the Obama adminstration has accomplished a great deal. It has succeeded in putting in place the necessary financial resources to support not only the financial systems of countries in Eastern Europe, Asia and Latin America that need help, but put emphasis on the need for resources to go for helping reduce job losses, create jobs, and provide some forms of income or support to people in these countries. This is a major step as it means the countries of Eastern Europe and other developing countries can deal with their crises in confidence. Mexico is taking loans from the IMF. Dominique Strauss Kahn had begun the policy of shifting IMF's focus to these social goals as significant parts of the recovery process in countries, but he faced the old mindset among the IMF staff, as when its reported staff wanted to increase interest rates in Pakistan by 10% instead of the 3% that was finally agreed to. That would have caused serious difficulty to the people of Pakistan, created chaotic situation and disturbed the social fabric of that country. See the link to this for S. Korea and for Pakistan. And as Gordon Brown put it the old conditionality that lay behind the IMF loans, is phased out. This makes it the new policy at the IMF backed by the G20 mandate. The Washington consensus which prescribed open borders, floating exchange rates and fiscal prudence is now ended. And to support this change the developing countries will have a bigger say in IMF policy and decisions. ...