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Krugman points out the gains on three fronts evident from the Census Bureau report of 5.2% gain in median income of households in the U.S. He says the first is the growth in incomes of ordinary working class and middle class families, second the large decline in the poverty rate, and third the further rise in insurance coverage in 2015 for people without health insurance. He points to the steady efforts of the Obama administration to improve lives of ordinary families as working based on the Census report though results have taken time, and could have been better. The Stimulus, says Krugman could have been larger following the blow of the 2009 financial crisis and increased unemployment at the time. Janet Yellen at the inequality conference of the Boston Fed in 2014 pointed out the problems of 62 million households having net worth of about $10,000, and why this was running against the American idea of a better life for all Americans. In that sense the Census report is a movement in the right direction but a lot remains to be done.   ...

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This WSJ editorial says despite his call for "hard-hitting sanctions" prime minister Cameron of Britain has not taken action to stop the flow of "dirty money" from Russia into the City of London. About $75 billion left Russia so far in 2014 in capital flight as the Russian elite shifts money overseas including to the City of London. France has a planned $1.6 billion sale of Mistral naval ships to Russia, and will need the British example to cancel this sale. Putin's strategy is to distance Europe from the U.S. In the EU countries opposing tougher sanctions are Germany, Netherlands, Italy and Greece. Netherlands suffered the most with 193 Dutch citizens killed in the shooting down of Malaysian Airlines Flight 17 over eastern Ukraine.

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WSJ reporter Bob Davis writes this report on the end of the China economic miracle in 2014 as he completes a 4 year assignment covering China. He says China's economy is slowing rapidly and he is pessimistic abou the future. Construction cranes visible across China's skyline says Davis, can no longer be interpreted as growth inducing. With rows upon rows of empty flats in third and fourth tier cities which account for the bulk of the increase in housing construction, the consequences of a debt fueled construction boom are easy to see. Davis cites the IMF on the dangers of credit fueled growth in China- only 4 countries have experienced as rapid an increase in credit to GDP ratio in 5 years. Each of the 4 countries Brazil, Ireland, Spain and Sweden experienced a sharp decline in GDP growth and banking crises following the credit bubble. Estimates of debt to GDP are as high as 250% for China. Krugman, Roubini and other economists have warned about the credit bubble, saying China is no exception to the rule for the risks posed by such a bubble. ...

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The President of the American Chamber of Commerce, Harley Seyedin, says that the days when migrant workers did not know their rights, labor laws were not enforced, and factory owners could keep wages low, are gone. With 787 million mobile phone users and 384 million Internet users- which includes migrant workers who can now get the news about the latest developments, send messages, video, and access the internet. For its part the government made serious effort to create awareness about new labor laws of 2008 through the state run media outlets. And workers have greater awareness and understanding of their rights for safe working conditions and double overtime pay, as well as other rights guaranteed in China's new labor laws. And something else is happening that connects the universities with workers. The expansion of the number of students at Chinese universities has brought more people from rural areas into the universities. This has created sympathy and support for migrant workers at the universities. Nine sociologists at Peking and Tsinghua universities signed an open letter calling national and local governments to implement actions that let migrant workers integrate into the city environment and share in the country's progress that they are creating. The government's security system has prevented the creation of a worker's movement in the past. But this time the government may be thinking of the need to develop China's domestic market, as the reliability of markets in the USA and European countries is uncertain as economic conditions change. For this to happen China's workers need higher wages to buy the goods China produces. ...

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The new Australian budget is designed to generate a slight surplus from the A$44 billion deficit for the fiscal year ending June 30. This prepares the Australian government of Julia Gillard for elections in 2013. The budget depends on the mining boom to generate the tax revenues for planned economic growth of over 3% in 2012-2013. This is based on the large number of projects planned for investments in oil, gas and other energy projects, valued at US$456 billion. GE as supplier of turbines and other products to the Chevron-Total gas project and other projects in Australia, has sales in Australia match its sales level in China in 2012-2013. This gives an idea of the extent of the boom in the mining and energy sector. Even the widening trade deficit to A$1.59 in March 2012 reflects large imports for the mining sector. The weakness of this approach is that too much is dependent on the mining and offshore gas boom. Retail spending is weak and Australia is increasingly looking like a two tier economy, subject to the boom and bust cycles that its mining companies have experienced in the past. A bubble in Australia's housing markets and uncertainties in the global economy pose other risks....

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U.S. airline stocks surged in 2014. Energy stocks crashed in the 4th quarter of 2014 losing over 30% of their value as oil inventories surged. Russia and Greece were the worst performing countries with losses over 30% for funds in these countries. India stock funds returns exceeded 30%. High yield bonds performed badly, with higher returns on investment grade assets. Apple continued growth following the introduction of the iPhone 6, with the stock value growing by 38% in 2014.

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The boost to investor perceptions for India with Modi's election, and to Indonesia with Widodo's election are major changes in the second half of 2014. The first half saw the dented confidence in Argentina, Venezuela, Turkey and South Africa. To this can be added Russia with Putin's response in Ukraine and western sanctions. China with Jinping's response to pro-democracy protests in Hong Kong for restoration of the pledge of free elections by 2017, appears to be losing investor confidence, especially with investors seeing this as adopting the Putin Way. This is happening with a gradual movement towards restoration of trade relations with Iran.

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Stevenson and Caselli describe the mood in Buenos Aires as negotiations with hedge fund holdout bondholders fail in July 2014.

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A very relevant comment about the media coverage on Putin's negotiations in Beijing for supplying natural gas to China, by a reader of the WSJ, Frank Peel. He points out China and Russia do not share the same goals and Putin talked about the Chinese as tough negotiators after signing the deal. The price as a "commercial secret" is because its years, could be 5, before gas actually flows to China from Siberian fields. Russia, is a smaller oil based economy- having failed to make the transition to a diversified economy- and very susceptible to the economic conditions in Europe and the U.S., as the 2008 crisis showed with very steep drops in output. President Obama has also pointed to this. Russia also shares with Argentina the tendency for elites- in the case of Russia a newly created oligarchy of business interests under Putin and his predecessor- to shift capital out of the country, making it even more susceptible to loss of value of the currency, the ruble. Devaluation of the ruble experienced under Yeltsin was severely traumatic for Russia, and the head of Russia's central bank went on state television recently to reassure ordinary Russians that this would not happen. The rainy day sovereign fund of over $400 billion acts as a cushion for shocks in short periods, but sustained loss of foreign investment would damage prospects for future improvements in standards of living or economic growth....

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China's domestic debt has surged to levels that precede a crisis, to 216% of GDP and heading for 271% by 2017 according to Fitch Ratings. As a result president Jinping has taken over control of economic policy and controlling debt, especially local government debt, is now a top priority for 2014. Jinping will head the "leading group" for overall top down reforms, reflecting the new urgency. Local government debt went up 67% from 10.7 trillion yuan to 17.9 trillion yuan ($2.95 trillion) in just 3 years from 2010 to 2013, according to the National Audit Office. About half of this debt is due by the end of 2014, according to Standard Chartered Bank economist Stephen Green. Another risk is that shadow banking with interest rates of 10% are now about 11% of new lending. The option adopted by the government to use central government funds and regulation to restrict lending could make local governments turn increasingly to the shadow bank lenders (trust companies, and informal lenders) making things worse. The other option of tackling it aggressively by letting some companies default has the risk of other lenders raising rates on loans and bonds. This makes solutions tricky and prone to problems of increasing severity. ...

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Local investment companies were allowed to borrow beyond their limits after the financial crisis of 2008. There are about 8000 local investment companies (LIC's) and they were used during 2008-2010 to get funds quickly to projects. The LIC's borrowed for local governments, and borrowed extensively to build roads, railroads, power plants, and other infrastructure and buildings. Northwestern University Professor Shih has followed this carefully, and estimates LIC debt owed to banks at $1.68 trillion, or 34% of China's GDP. Some of the banks have collateral in land, but many banks are relying on the ability of the local governments to pay back the loans. And some of this is in money losing projects.

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The IMF in its 2012-2013 Global Economic Outlook Report presented at its annual meeting in October 2012 estimates global economic growth of 3.3% in 2012 and 3.6% in 2013. This is a drop of 0.2% for 2012 and 0.3% for 2013 from its earlier forecast in July 2012. Under the IMF definition the global economy GDP does not have to decline for a recession. Advanced economies growth estimate is 1.3% in 2012 and 1.5% in 2013. Emerging market economies growth estimate is of 5.3% in 2012 and improving to 5.6% in 2013. Specifically for the eurozone growth estimate is decline of 0.4% in 2012 and 0.2% growth in 2013. U.S. growth is estimated at 2.2% for 2012. China's growth rate is estimated at 7.8% in 2012 with a growth uptick to 8.2% in 2013 as a much smaller stimulus than the one in 2009 kicks in. This will help commodity exporters like Brazil, Australia, and Canada. Two surprises are Brazil's growth with a significant improvement to 4% in 2013 from 1.5% in 2012 because of sharp interest rate cuts and improving demand from China. The other is India which is expected to show a significant slowdown with a growth estimate of 4.9% as the government faces what the Kelkar committee report calls "a perfect storm" of a large current account deficit and a budget deficit, and failure to attract foreign investment. Growth in Japan is expected to slow to 1.2% in 2013 from 2.2% in 2012 as the government imposes a sales tax increase to reduce its deficit. ...

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Lower oil prices in 2015 make it possible for president Joko Widodo of Indonesia to remove costly fuel subsidies in Jan. 2015. With the steep decline in oil prices this made it possible to lower fuel prices at the pump at the same time. The costly fuel subsidies cost Indonesia more than money spent on education and healthcare. This frees up money for other programs. In November the Widodo government fulfilled one of its election promises by sending out national "smart cards" to over 15 million poor Indonesian families, which gives them free health insurance and education related expenses for children for upto 12 years of school. Programs planned for infrastructure in 2015 include 13 new dams and long overdue upgrade to the north-south Trans Sumatra Highway. Critics point to the appointments, including for police chief and attorney general, that reflect the influence of Megawati Sukarnoputri, a former president and chairwoman of Mr. Joko's party, the Indonesian Democratic Party of Struggle, and of parties that supported Widodo. ...

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The WSJ Dollar Index tracks the U.S. dollar's performance against 16 other currencies. It surged by 12% in 2014 with a strengthening U.S. dollar. The rise in the dollar is likely to adversely affect the 15% of U.S. GNP that comes from exports and the $200 billion plus tourism industry in the U.S.

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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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Sharp drop in oil prices in Dec. 2015.

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This WSJ editorial in September 2014 describes the Russian threat to the NATO alliance and the nations bordering Russia in Eastern Europe. This follows the Russian army's intervention in the Ukraine-Russia border regions in the end of August and early September 2014.