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Failure of U.S. regulatory agencies to implement an important provision of the Dodd-Frank legislation- instructing regulators to find all references to ratings agencies in their rules, and then replace them with better standards for judging credit risk. Treasury's Office of the Comptroller of the Currency, is one of the agencies trying to gut this reform, says this Wall Steet Journal editorial. The S.E.C. voted unanimously in March and April to propose rules eliminating credit agencies in their regulations on money funds and stock brokerages. As the comment periods have ended, the Journal calls for the rules to be immediately made final. Officials from FDIC and OCC are dragging their feet on this. One problem they face is their assumption that the Dodd-Frank law requires them to come up with the perfect rule for measuring credit risk. This is not what the change is intended to do. It is enough says the Journal to return the responsibility for the right metrics and the hard work of analyzing a security back to where it belongs- to people who manage these assets and institutional managers. Even if they made some mistakes it would be far less than the systemic risk posed by having all major institutions making the same mistake at the same time and the entire system following flawed ratings by the big three credit ratings agencies. This happened in the 2008 mortgage securities financial crisis. S&P has stated that it does not support the old system. And new alternatives are appearing for ratings- CreditSights, Rapid Ratings, Kroll Bond Ratings which got S.E.C.' support, and other alternatives still to come....

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After intense efforts German Chancellor Merkel was able to pass legislation expanding the EU bailout fund with the support of members of her coalition in Parliament. The opposition Social Democrats and Greens supported the legislation. Merkel carried the vote with a 4 vote margin from her CDU-FDP coalition. Fifteen members of her coalition voted against the legislation. This increases the bailout fund's lending capacity from around 250 billion euros to 440 billion euros. There is considerable skepticism among members of the German parliament about whether this will work. German guarantees for the European Financial Stability Facility (EFSF) increase to 211 billion euros from 123 billion euros under the new legislation. German finance minister Schauble ruled out borrowing by the EFSF from the ECB and leveraging EFSF funds in the process. The fear for German policymakers is that this would lead to Germany losing its triple-A credit rating and create its own risks. Experts have cautioned against the use of leveraging because of the financial risks....

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U.S. GDP growth is 1.5% for the second quarter after 2% growth in the first quarter. The slower growth shows that much of the productive capacity of the U.S. economy is not being utilized. See the graph showing the growth during the recovery after the recession of 2009 compared to the recessions in 2001, 1991, 1980, 1975, 1970. The curve is much flatter this time. Every recovery except the recovery in 1980 shows a faster rebound. Economic recoveries have taken longer over time since the postwar boom period.

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Former finance minister Peer Steinbruck will be the SPD candidate for chancellor of Germany in the 2013 elections. He is is trusted in Germany for his economic experience and handling of the economy during 2008-2009, especially with the eurozone crisis worsening. Helmut Schmidt, a former chancellor has endorsed Steinbruck. He could draw some right wing support from Merkel. Merkel is personally popular in Germany but the CDU has lost elections in key states, and its partner the Free Democrats is considered weak.

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Bill Keller of the New York Times, reflects on his experience in Moscow during the fall of communism, and the Russian youth then and their children in the protest marches in Moscow today. He sees a new generation with different expectations, not limited by the past in what they think is possible, should be and is normal.

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Higher inflation in Germany could help rebalance the German economy by increasing imports. German inflation has averaged 1.6% since 1999, compared to 2.0 % for the eurozone. It was 2.3% in December. And after years of wage restraint German unions are increasing the wage demands. IG Metall is looking for a 6.5% wage increase. And interest rates at 1% are quite low for Germany where unemployment is down to 5.5%, according to Eurostat, and employers have to meet higher wage demands. The ECB is aiming at 2% inflation and Germany has a 26% weighting in the calculation of the rate. But as Italy, France and Spain see inflation decline there is room for addditional inflation in Germany before the eurozone goes well above the 2% inflation rate. By freezing wages and improving price competitiveness with German products, other countries could increase exports. Yet the prospects of this making a large difference is limited because German companies are likely to push for wage restraint. The Bundesbank predicts wage increases of 2.4% in 2012. Over time the wage restraint in other eurozone countries and even slightly higher wages in Germany would reverse the trend since 1999 of Germany having much lower inflation, and this could be one of the factors helping in rebalancing....

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Risks to stable long term growth of too much liquidity in the global financial system.

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Egypt's presidential candidate Mohammed Morsi, leads in the first round of presidential elections over Amr Moussa. He has no ties with the Mubarak regime and comes from the Muslim Brotherhood. Morsi is an engineer trained in Egypt and the U.S. Morsi graduated with bachelors and masters degree in engineering from Cairo University, and a PhD. from the University of Southern California in 1982. From 1982 to 1985, he was a professor at California State University at Northridge, California. In 1985 he returned to teach at a university in Egypt. He was elected to parliament as an independent candidate as the Mubark regime banned the Muslim Brotherhood. In 2011 he was elected head of the Freedom and Justice Party and made its candidate for president. Because of the severe economic problems facing Egypt- a demographic explosion of young people with few job opportunities, enough foreign reserves to finance a limited period of food and essential imports and dependent on the IMF for financing, neglected infrastructure development during decades of misrule under Mubarak- a candidate with an advanced engineering background trained in the U.S. could bring the right set of skills to the job of rebuilding Egypt. ...

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The basic architecture to support the euro currency is being proposed in a seven page report prepared by presidents of the EU Council, the ECB, the EC and the Eurogroup. This includes deposit insurance to protect against a run on banks, a European bank supervisor with possibly the ECB in that role, and the European Financial Stability Facility, the eurozone rescue fund, acting as a backup if deposit and resolution funds need support. Currently the European Banking Authority setup after the 2008 crisis works with central banks of the individual countries to regulate the banks. In contrast to sanctions imposed for overspending under prior EU agreements the report says new powers would be transferred to a European Authority on the fiscal side so that overspending can be controlled at the European level and budget deficits are set at the European level.

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The new labor law of prime minister Mario Monti's administration was passed in the Italian parliament by a vote of 393-74 on June 27, 2012. Passage of the major labor law reform was an important piece of legislation for Italy to regain cometitiveness in the eurozone and increase growth. It was seen as a confidence vote in the Monti administration.

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The northeastern region of Brazil, the poorest region of Brazil, has benefitted from the economic expansion in Brazil. The region's GDP went up by 4.2% a year for the last ten years compared to 3.6% for Brazil. Bolsa Familia, President Lula's anti-poverty programme has benefitted the northeast, but the Getulio Vargas research institute shows three quarters of growth coming from earnings and expansion of export based agriculture in soyabeans and other products and from mining export industries. Projects in the northeast include development of the port and industrial area around Suape. A petrochemical plant, a shipyard and a Petrobras refinery, are under construction. A new railway will link Suape to the interior. Much of the development is for export industries in soyabeans and iron ore, and for the rail and port infrastructure that supports these exports to China. As a result the development looks similiar to what is happening in Australia with the huge expansion in rail and port infrastructure in that country to support iron ore and other mining exports to China. Any slow down in China will affect Brazil as the IMF has recently warned, because of an overdependence on commodity exports to China. Alexandre Rands of local Datametrica consultancy points to this when he says that infrastructure booms while helpful are not enough to sustain development. Big firms train the workers they need which is how Brazilian companies cope with a weak educational system. Schools in the northeast are however not getting the financial support to improve education, a situation that affects Brazil as a whole, but is even more evident in the northeast....

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Concern about slowing growth in China with rising inflation. The problem of opaqueness of the financial system and of banks that are both listed companies and run by the government, and how this could accelerate a slowdown at some point with accumulated problems in the financial system. A sense that China's growth model has reached a limit, and whether there will be a soft landing.

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In 2013 the Greece government of Antonis Samaras made a study of wartime costs incurred by Greece for damaged infrastructure during the Nazi occupation of Greece and Nazil loans forced on Greece between 1942-1944. The estimate exceeded 200 billion dollars. Die Linke, a socialist party in Germany in the European parliament allied to Syriza, also supports debt forgiveness.

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A Infratest Dimap opinion poll for broadcaster ARD shows 70% of Germans rating finance minister Schauble's work positively in July 2015.

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Krugman points to financial deregulation, cross border financial flows, private debt in dollars and depreciating currencies, and the U.S. Federal Reserve's low interest rate policies, as the main culprits for bubbles and the emerging market crises in the 1990's and 2013.

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China is not experiencing high unemployment in 2012 the way it did in 2009. The lower growth rate of 7-8% is not having an adverse impact on unemployment. This makes it possible for the stimulus this time to be much smaller. There is rising upward pressure on wages. According to the National Bureau of Statistics, CEIC and WSJ, average annual wages at private sector manufacturing companies in current U.S. dollars was up 5% in 2009, 16% in 2010, and 20% in 2011. This is being encouraged by the government as China gradually shifts its economy towards higher domestic consumption and better standards of living for workers. Hon Hai Precision Industry Company added 82,000 workers in China in 2011. Salaries at the Shenzen plant were 2200 yuan or $345 a month in February 2012, an increase of 10%. An April survey by Manpower Group showed that a majority of companies will increase workers or hold employment stable, only 3% of companies will have job cuts. Demographic changes are also playing a part-with fewer people in the 15-19 age range, dropping from 120 million in 2005 to 95 million in 2015, according to UN estimates. The number of migrant workers remains steady at 252 million in 2012, up 4% from 242 million in 2010, according to the Bureau of National Statistics....