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China's premier, Wen Jiabao, opened the National People's Congress, annual meeting of the Chinese parliament, by saying that China had lowered its growth rate to 7.5% from 8%. GDP growth for 2011 was 9.2%. Wen set an inflation target of 4%. The CPI index increased by 5.4% in 2011. Wen set 14% growth target for M2, China's broadest measure of money supply.

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Liu He, the author of the 2013 DRC report on recommended changes to China's banking and financial system, is now the director of the Communist party's top financial policy committee and senior advisor to president Jinping. Changes he is pushing for relate to increasing focus on credit risk for China's banks, promoting competiion between banks, a mechanism for letting banks fail, and a deposit insurance program to protect the public against failing banks. To open up the sector dominated by state owned banks, opening private banks would be encouraged. Local governments would be allowed to issue bonds in an effort to reduce their dependence on land sales and opaque off-market borrowing. The urgency of this agenda comes from the realization in top Chinese policy circles and the Jinping-Keqiang administration of the risks to the banking sysem from the lack of attention to credit risks in bank lending.

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Prof. Peterson of Harvard and Hanushek of the Hoover Institution, authors with Woessmann of the book "Endangering Prosperity: A Global View of the American School," offer some startling reminders about the importance of education to economic growth and incomes in countries. Simply by raising the math standards in the U.S. to the higher standards in Canada would raise GDP by three fourths of one percentage point. One advantage that the U.S. enjoys comes from its good university systems, open markets, rule of law, tax rates, and open immigration policies, which give it about two thirds of a percentage point in higher GDP growth per year. The estimates are from the authors calculations. For the period 1960-2009, a period of rapid growth in Asian countries Korea, Taiwan, Singapore and Hong Kong, higher test scores in math and reading compared to the wrold average as measured by NAEP test and PISA, have led to 2% higher GDP growth. NAEP shows only 32% of U.S. high school students proficient in math compared to 45% in Germany and 49% in Canada and 63% in Singapore. By contrast to Korea and Taiwan, Peru, Argentina, the Philippines and S. Africa have about 2% less in GDP growth because of lower scores compared to the world average....

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The Washington Post points out the damage to civil society and the rule of law in Egypt in 2014-2015.

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China's Finance Ministry is having a difficult time controlling local governments using local government financing vehicles to invest in more infrastructure, airports roads and subways. One such city is Wuhan which plans six subway lines, three bridges over the Yangste river and a new airport. Much of the money comes from land sales. The Finance Ministry in a 2013 report pointed to the unreliability of land sales for future borrowing as the property market is slowing, and because it is highly unpopular to requisition land for land sales. This matters because the IMF says debt is growing faster in China than when Japan, South Korea and the U.S. fell into deep recessions at different times between the late 1980's and 2009. Local government debt accounts for one fourth of the increase in China's domestic debt since 2008. New rules by China's bond agency in Dec. 2014 prevents investors from using low grade debt to borrow cash. In the past local governments found a way around the central governments effort to curb growth of debt by restructuring the local government vehicles or some other way, as Wuhan has done. Wuhan Urban is the local government financing vehicle for Wuhan and its debt increased by 20% in 2013. Wuhan's mayor, Tang Liangzhi, is pushing construction to the point where he is known as Mr. Dig, Dig. One reason for China's slowing growth below 6-7% is the need to control the growth of debt. Local government debt in China reached 36% of GDP in 2013, double the figure in 2008, and will increase to 52% of GDP in 2019, according to the IMF. And the increase is not proportionally delivering the same results as before. JP Morgan estimates that over 4 units of borrowing are needed in 2015 for every unit of investment, compared to less than 2 units of borrowing for every unit of investment in 2007. PRC Macro Advisors of Hong Kong says half of the borrowing by financing vehicles goes to pay interest on existing debt in 2014. There are 8000 such local government financing vehicles in China today each competing to build infrastructure in its neighborhood, in the case of Wuhan to build a computing back office for financial companies and as transportation hub, even though its uncertain whether this will be realized or not. The problem is that alternative investments as an opportunity cost are being neglected, the hospital not being built as China's population ages with underinvestment in health care, and the private company with better returns that is unable to find financing. A classic example of crowding out of better return investments as a glut of housing and road/bridge/ airport infrastructure gets built. The central government is wary but faced with slowing growth pushes problems down the road, what experts call a Japan syndrome....

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U.S. President Obama's 2013 State of the Union address focussed on the problems facing the U.S. middle class, calling it "our generation's task" to tackle this problem. Economic changes have changed the patterns of economic growth and jobs, growth, income growth, that prevailed from the end of the Second World War to about 1989. But he offered few solutions beyond increasing the minimum wage to $9.00 from $7.25 to reduce poverty.

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Kenneth Rogoff of Harvard University, expert on debt crises, and author of "This Time is Different," says China is one of the best examples of the idea that this time is different, with the idea created that somehow China was impervious to the massive build up of debt. The debt is now over 250% of GDP, and this was possible for so long because of the high savings rate of 30% of disposable income and the millions of young migrants moving to cities to work in manufacturing. The growth of shadow banking, opaqueness in decisionmaking, unreliable data, use of local government financing vehicles, the bubble in housing with a large portion of loans tied to the real estate market, all combine to create serious problems that will take a long time to sort out. Rogoff says the crisis in Tianjin with the deadly explosions in the port area, and the government's inability to provide answers to questions from a alarmed public, only added to the uncertainty and loss of credibility. Rogoff says he hopes the trillions of dollars in reserves will provide China with the tools adequate to tackle the debt problems before they spread to other countries....

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Caterpillar is asking workers at its Canadian plant to accept a large cut in wages and benefits. Wages and benefits at Caterpillar's rail equipment plant in LaGrange, Illinois, are less than 50% of the costs at the Caterpillar locomotive assembly plant in London, Ontario. According to the U.S. Bureau of Labor Statistics U.S. manufacturing labor costs per unit of output were 13% lower in 2010 than in 2000. This compares with an increase of 2.3% in Germany, increase of 18% in Canada, and increase of 15% in South Korea. Caterpillar is also asking for more flexible work rules at the Canadian plant. The flip side of this is that U.S. workers are earning significantly less in manufacturing, especially considering inflation, and the middle class is shrinking in the U.S. At the same time wages in the U.S. that are more competitive with wages in Mexico and China with flexible work rules and use of automation and technology, is helping to reverse the shrinking of the manufacturing sector in the U.S....

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Close to half of the respondents in the 2010 Annual Survey of the American Chamber of Commerce in Shanghai, say that they face regulators who show a preference for domestic companies. About 80% of respondents said their operations were profitable in 2010. In 1999, 58% of Shanghai members of the chamber said their profit margins were below worldwide levels. In 2010, 78% said their profit margins matched world levels. Just under half of the respondents said they feared a negative impact from China's effort to build "indigenous innovation" and encourage domestic champions in each industry. 63.1% of respondents say regulations are getting worse or staying the same. Chinese President Hu on a state visit to the US in January 2011 is presenting the idea of a level playing field for American companies.

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A major shift in foreign investment may be taking place as the 2014 St. Petersburg International Economic Forum takes place in May 2014. Russian policy in Ukraine and tensions with the U.S. and Germany could lead to a shift in investment to other emerging market countries. China's tensions with Japan could lead to a similiar shift of Japanese foreign investment. At the same time India has elected a new government with an absolute majority and an overwhelming mandate from young people to accelerate development. The new government under the BJP party's Modi has a decade of experience attracting foreign investment in western India. Indonesia, Vietnam, Africa and other emerging market countries, could benefit from the shift in investment. Investment could also return to the home countries with lower labor costs in Southern Europe, lower labor/energy/transport costs in North America. For Russia the debate at the St Petersburg Economic Forum was about pursuing one of three policy paths with some riskier than others, or some combination also risky and uncertain- depending on state banks and oil windfall funds, increasing ties with Asian countries, continuing on the current path with lower foreign investment and continued capital outflows. The failure to use the time wisely to diversify the oil based economy which could have been better accomplished in an economy not overly dependent on crony capitalism and centralized economy, both current characteristics, will affect future progress. A key weakness for Russia compared to China is the centralization under one person Putin, more so in the third term. In China the two man team Keqiang and Jinping is part of a larger team chosen by consensus and negotiation and part of a rotational scheme. It has senior leaders who initiated the changes to a market driven economy in the nineties determined to see China on track....

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IMF research by Ocampo and Erten shows that when adjusted for inflation since the 1970's, the prices of metals have remained about the same, food prices down 58%, and energy prices up 163%.

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Malaysia's debt to GDP ratio increased to 242% in mid-2012 from 192% in 2008 according to McKinsey. As export growth has slowed the Malaysian government is relying on credit expansion to consumers and large capital projects such as the planned subway project in Kuala Lumpur to sustain growth. Similiar credit expansion is seen in other Asian countries- Thailand, Vietnam, Singapore, Hong Kong. The period 2008 to 2013 has seen a rapid acceleration in credit expansion in these countries and especially in China. China's debt to GDP ratio increased to 183% in mid 2012 from 153% in 2008, according to McKinsey. Nomura Holding's economist Zhiwei Zhang, and other economists say it is above 200% when government data on "shadow banking" lending institutions such as trust companies is included. IMF economist Giovanni Dell'Ariccia has studied of debt expansion and credit booms since the 1970's. He and other economists at the IMF have found that credit booms- the rapid increase in credit to GDP ratios- end up in crises one third of the time, result in below par growth in another third of the time, and only in one third of the time does growth continue at the high pace. Alex Frangos talks to government officials in Kuala Lumpur who do not take seriously the high vacancy rate for office buildings in the capital of about 20% even as new office towers are being built. Bob Davis gives the example of government owned Hunan Expressway company in China which has a huge road building program and doubled its 2009 debt levels. Another state owned company in shipping China Cosco Holdings increased total debt from 85 billion yuan in 2009 to 123 billion yuan in 2012. As export growth slowed in China in 2009 credit expansion is driving growth. The normal restraints of the market are absent in China's state owned companies. Charlene Chu, senior director of Fitch Ratings Inc in Beijing, says 2012 demonstrated that the Chinese government cannot slow credit growth without risking a decline in growth. China's GDP growth in the 1st quarter of 2013 slowed to 7.7% from 7.9% in the 4th quarter of 2012. This poses a serious problem for China. China has never experienced the kinds of problems seen in Asia after the 1997 banking crisis, in the eurozone today, and in the U.S. following the financial crisis of 2008, making government officials prone to complacency about the risks....

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Orlik reports that the link between China's GDP growth and lending has broken down as credit expansion is accompanied by slowing growth. Slowing credit growth and lowering GDP growth even further is the price China's ecnomic planners are willing to take to forge a new path of sustainable growth, increasing efficiency of investment and increasing domestic consumption. The ratio of China's credit outstanding to GDP has jumped to about 180% in 2012 from 123% in 2008. Rapid expansion of credit is one of the danger signals before a crisis according to the IMF. Turkey and China are facing danger signals according to this IMF danger indicator.

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India's crude oil imports were sharply higher in 2011 and 2012. India's imports of crude oil for the first 11 months of the 2012 fiscal year ending March 31, show a 40% increase over the same period in 2011 fiscal year. India's import bill was $128 billion for crude oil imports for the 11 months of fiscal year 2012. Indian subsidies to lower prices for fuel are $30 billion annually. The higher prices for crude create inflationary presssures in India and restrict economic growth.

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Prof. Gorton and Prof. Metrick of the Yale School of Management review 16 scholarly studies and papers on the causes of the 2008-2009 global financial crisis in the current isue of the Journal of Economic Literature. Another article in the same journal reviews 21 books on the subject. Samuelson says the most cited causes- lax regulation and passive regulators, and the policy of home ownership that encourage the packaging and of securitization of mortgages to government sponsored agencies Fannie Mae and Freddie Mac- are only the surface causes. If we are to explain how a whole society seemed to believe in the idea that somehow there was a way to maintain a rising tide continuously, with only small corrections over several decades, by the clever manipulation of monetary and fiscal policies; then one has to look to the hubris of economists who acted as if this was possible and the gullibility of business and a public that desperately wanted to believe as some have put it "that this time it was different," or that shrewd management of economic policy could actually bring about such a panacea. The abiding lesson is economic policies based on a better understanding of how modern industrial economies work are merely useful tools, no more no less, and there is no substitute for a good ethic, wise management and careful thinking on the part of the public, business and government, particularly for the people in leadership positions. ...

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China's shadow banking system of trust companies and insurance companies with trust company units and other informal lenders are the fastest growing part of its banking system. Between 2010 and 2012 trust companies and other shadow banks doubled outstanding loans to 36 trillon yuan ($5.8 trillion) or about 69% of China's GDP, according to J.P. Morgan Chase & Co. Hidden debt that is likely to default in this poorly regulated sector is seen as a large risk in the banking system by the central bank and China's government planners. Tightening of credit by the central bank, the People's Bank of China, sent interbank lending rates from 3% to as high as 25% in late June 2013, finally settling on June 24 at 6.64%. China's state owned banks lend to trust companies in this market. Trust companies get additional financing by selling wealth management products promising investors returns of 8-10%. Even with China's high savings rate and large government reserves, the hidden debt and large unknowns about the loans in default, are seen by the central bank as posing risks to the target rate of economic growth of 7.5% if the government has to bailout a significant number of troubled banks. Much of the money funnelled through the trust companies since 2008 has been poorly invested. The trust companies such as Citic and Ping An Trust channel lending to borrowers for projects ranging from steel mills to infrastructure projects, such as highways and property developments that cannot obtain the financing through the large state owned banks. Fitch Ratings estimate is that since the financial crisis of 2009 these loans generated only one third of the economic growth per yuan as they did before 2009. ...

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Administrative costs are one of the key reasons tution costs have increased to excessive proportions in the U.S., putting a heavy burden on the middle class, reducing social mobility that is an important aspect of postwar progress in Europe and the U.S. by putting college out of reach for millions of young people. This also creates a heavy debt burden for young people- U.S. student loan debt passed $1 trillion in 2012- who are less likely to buy a first home because of years needed to repay student loans. The market pressures to control costs do not exist in the same way as industries such as automobiles, because of the demand for college education in a modern globalized economy. Douglas Belkin and Scott Thurm have provided an indepth look at the University of Minnesota to show the spending surge and internal tendencies for faculty and bureaucracy to increase spending on hiring, building expansion to compete with other schools, and salaries to support their own within the college and university system, with a passive student community, and passive parent community, and lack of other outside pressures. Tution and fees for state residents doubled in the last decade at the University of Minnesota to $13,524. The figures tell the story- total debt with borrowing for building construction at U.S. 4 year public colleges tripled to $88 billion between 2002 and 2011, according to the Department of Education. Debt servicing costs doubled at the University of Minnesota to $106 million in that period. Minnesota's government provided $570 million for university operations in 2011, same as 2003-2004 school year even with inflation and 10% higher student enrollment. Yet analysis by the Department of Education and the Wall Street Journal shows in that period the spending increased disproportionately compared to inflation, student enrollment and teaching activity, with little restraint. WSJ analysis showed the University of Minnesota system added 1000 administrators between 2001-2011, with administration hires increasing 37%, double the increase in the students and double that of teachers. During that period the number of employees to manage people, programs and regulations went up 50% faster than the number of instructors, according to the Department of Education. Bureau of Labor Statistics cites this as the reason tution costs went up faster than health care costs. The 19,000 employee payroll at the University of Minnesota means one employee for three and half students. The new university president in 2011, Eric Kaler, interviewed by WSJ's Belkin and Thurm, says no one knew what it cost to run the school when he started....

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German response to Obama's urging for a bigger stimulus as seen from the American side. The German side looks at the hyperinflation of the 1920's, the American side looks at memories of the Great Depression and the Hooverist response, in the early years before Roosevelt.