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Faces of the U.S. unemployment, foreclosure and housing crisis in Hagerstown, Maryland, in 2011.

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Housing market looks weak in Juy 2010 with the U.S. Census Bureau reporting single family housing starts falling in June by 0.7%. Permits for single family starts fell 3% in June 2010. A Wall Street Journal quarterly survey shows rising inventories in 28 metropolitan areas. Inventory was up at the end of June 33% from a year before in San Diego, and 19% in Los Angeles. Compared to 2008 when the banking crisis caused problems, now it is the general economic conditions that are acting as a drag on the housing market.

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Chancellor points out that economists from Irving Fisher in 1929 to Ben Bernanke in the mid-1990's have often played the role of academic shills during each successive period of "This Time its Different, " claiming that there was some new event, technology, or innovation, that justified higher valuations of assets and higher institutional debt levels. He quotes Walter Bagehot who says about merchants and bankers of his day-" they fancy the prosperity they see will last always, that it is only the beginning of a greater prosperity." The significance of the book is that it suggests an hypothesis that is quite different from the general idea in 2011 that there won't be a protracted period of slow or marginal growth after a bubble of this nature. Because the bubble is also in other countries, in countries of the euro-zone, China, Turkey, Brazil, and other countries, the situation takes a much longer time to heal.

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Australia exceeded China in total revenue for GE by $100 million, with $5.8 billion in revenues. GE now sees resource rich countries providing revenue growth of 25% in the next 2 years compared to 10-15% for China and India. The Ichthys $34 billion LNG project by Total SA and Inpex of Japan alone generated $1.1 billion in contracts for gas turbines, compressors and underwater production systems. The Gorgon project of Chevron on the northwest coast of Australia generated $1.3 billion in revenue.

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Egypt's new prime minister, Hazem el-Beblawi, in July 2013, is a professor of Economics who received his doctorate from the University of Paris in 1964. He has taught economics at universities in Egypt, Kuwait, France and the U.S. After 15 years teaching at the University of Alexandria, he worked in development banks in the Middle East for another 15 years, joining the Finance Ministry in 2011. He resigned in protest against military shooting of protesters at the time. Egypt has about $14.9 billion in reserves according to Egypt's central bank, less than the $15 billion needed for three months of imports. Egypt needs to negotiate a $4.8 billion loan from the IMF. Earler negotiations were stymied by the military in 2011, and el-Beblawi will now be negotiating with the head of the Constitutional Court as president, after the ouster of president Morsi of the Muslim Brotherhood.

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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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China's consumer price index went up by 2.1% in March 2013, slower inflation than the 3.2% for February 2013. Food prices are growing at a slower rate, increasing by 2.7% in March over the prior year month, compared to a 6% increase over the prior year month in February.

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Karl Case, who jointly developed the S&P/Case-Shiller Home Price Index says there is that downward stickiness thats keeping the housing market fragile. Its basically flat right now, with a lot of inventory waiting to be cleared. And it isn't going to bring this economy out of a recession in the manner it has done in previous recessions.

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U.S. Federal Reserve minutes for Sept. 16-17, 2014 released October 8, show the mood shifting away from raising interest rates, as a stronger dollar and weak overseas growth are likely to lower U.S. economic growth, A stronger dollar is likely to keep inflation down. Fed officals showed serious concern about slowing economies of Europe, Japan and China lower U.S. exports. A former Fed adviser Jon Faust, director of the Center for Financial Economics at John Hopkins University, says even with no action from the Fed on interest rates, the stronger dollar makes financial conditions more restrictive, and acts as a tightening. The Fed minutes are before the crisis in Hong Kong which created geopolitical tensions and affects foreign investment climate for China, reducing Chinese growth even further.

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An analyst survey by MacroMarkets shows home prices as measured by the S&P Case-Shiller national index will decline by 1.4% in 2010, then increase in 2011 by 1.3% and 2.7% in 2012. At this time weaker jobs data are making analysts cautious about a rebound in the housing market.

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Short sales in the U.S. housing market in 2012-2013 are helping the recovery in housing prices and reducing foreclosures. Banks are reducing the time required to process short sales and both banks and homeowners are benefitting as foreclosures lead to much higher losses for all. In Oct 2012 foreclosures were 11.5% of total home sales, declining from 17.3% in Oct 2011, and dropping sharply from the 30% level in 2008-2009, according to CoreLogic. For the same period Oct 2011 to Oct 2012 short sales increased from 8.1% to 10.2%. Banks, real estate agents and homeowners see short sales as a better more efficient approach than letting homes go into disrepair, reducing prices in the neighborhood and creating larger losses for banks and homeowners. CoreLogic figures show short sales in Dec. 2012 cost 24% less than comparable houses not in financial distress. For foreclosures the discount was about 64%, showing the huge difference and how the wave of foreclosures in 2008-2011 must have hurt society and the economy....

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WSJ's John Lyons interviews Brazil's finance minister Guido Mantega in May 2012. Mantega says Brazil is following a"developmental economics" model for growth, which is more appropriate for Brazil. This includes credit expansion and loans to the auto industry by state owned bank Banco de Brasil in 2012, in an effort to revive growth. He sees the 20% decline in the value of the Brazilian currency, the real, helping increase exports.

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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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China's view on its new Air Defense Zone as expressed by the Foreign Ministry is that if European countries and Japan are entitled to set their own air defense zones then China should be able to set its own zone. The differences with Asian neigbors and the U.S. arises over the fact that this overlaps with the zones of S. Korea, Japan and Taiwan and also covers the area of the disputed Senkaku Islands. Other problems lie in the ambiguous wording and failure to share this information in advance with other countries. As it stands B-52's from the U.S. and Japanese planes entered the zone on Nov. 29, and Chinese fighter jets tracked the planes but there was no incident. U.S. civilian airlines have agreed to follow the rules set by China for the air defense zone, and the U.S. government says it will let the airlines make the decision to follow the zone. The EU protested the setting up of the new air defense zone.

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Martin Feldstein points out why the recent agreement for a "fiscal compact" is no more than an empty statement about fixing the eurozone's finances. In this respect it is no different than the Stability and Growth Pact it replaces, with serious weaknesses. Feldstein cites the weaknesses in the language of the agreement. Each eurozone country is required to limit its"cyclically adjusted" budget deficit to 0.5% of GDP and bring its debt down to 60% of GDP. Compliance will be performed by the European Court of Justice and fines imposed. In practice the questions loom large- for a country like Spain with a 23% unemployment rate, isn't all of the 6% budget deficit cyclical? Again the agreement says deficits are calculated "net of one-off and temporary measures." Under this provision a lot of the stimulus programs would be considered in the category of "one-off." Other language lets eurozone countries frame budgets based on "exceptional circumstances" and "periods of severe economic downturn." Italy has declining economic growth, does it make sense to have a large budget surplus in that situation to lower debt to GDP, and how does that goal relate to "exceptional circumstances."...

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Reinhart and Rogoff, 2 eminent economists who worked together on a book on financial crises since 1300, think that the current crisis has much deeeper to go, and the slight recovery in financial markets does not suggest that the imbalances in the economy are corrected. They point to economic weakness as a mechanism by which these imbalances are corrected. For example the economic weakness may be corrected by the weakening dollar resulting in accelerating exports from the U.S. The 1987 crisis had overvalued stock markets relative to earnings as an imbalance, and the 1998 LTCM crisis excessive hedge fund borrowing. Once these underlying imbalances were corrected the economic recovery was back on track. But the Fed's bailout of Bear Stearns has only put the financial markets on a safer footing. It has done little to correct the basic imbalances in the economy of over indebted consumers, and of lost wealth in housing, at the very moment that there is restricted access to credit. The financial market crisis only opened up the weakness from the extremely high leveraging used by the investment firms something like 1:30 by firms from M. Lynch to Goldman Sachs. The Fed's actions gave them time to shore up their finances and recover and the interest rate cuts and government checks help the economy, but not significantly enough to promote investment or increase consumption. The government checks would be used experts estimate for paying down debt and in this way it helps indebtedness a little, but does little to support consumption or promote investment, This the Fed's action also fails to do. The economy contracts and exports help the economy in recovering. The contraction itself say these economists is a necessary mechanism to make the adjustment in every crisis, until something else like exports helps create a recovery. Take December 1997, the Korean crisis. In this crisis the Korean companies invested heavily and were overextended , they borrowed heavily from the banks which in turn borrowed from overseas in dollars. When the Korean currency hit a record low against the dollar it became difficult for Korean companies to pay the increased cost of the dollar loans and many companies failed. As investment was slashed unemployment went up from 3% to 7.9%. Ted Truman, who worked on the Korean rescue effort as a Fed official, is now a scholar at the Peterson Institute of International Economics. He sees as similar to the overexpansion of housing and consumption in the U.S., the overexpansion and excessive borrowing in Korea's corporate sector in the years preceding 1997. After the rescue in Jan 1998, the Korean currency recovered by rising 63% in that year. Did this mean the crisis was over, just as the Bear Stearns bailout leads to gradually settling markets this year? During 1998 the Korean economy sank into a deep recession, the economy shrank 6% in 1998 when it was used to growing at 8%. Nouriel Roubini, another economist, who heads RGE Monitor, a financial and economic forecasting service, sees it this way. First, the mortgage loan imbalances are set into correction mode mechanism, then second, the economy contracts from housing and consumer debt going in reverse mode, then the third effects come into place as this feeds back into the financial system in the form of defaults on industrial loans, municipal bonds, and consumer credit. Additional sequences are in finacial system distress and government and Fed response to set the corrective mechanisms in place, but to also reduce the distress to the financial system and ensure that it is safe. We are where the first effects have ocurred, but before the second and third effects which should take place sometime in 2008 and 2009. The importance of understanding this cannot be overstated for business, planners, and investors because conducting business in this environment or planning or investing will require special skills and temperament which are different from the skills and temperament required in the expansion mode if one is to produce good results....

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Simms looks at the Plaza Accord of 1985 and the 60% appreciation of the yen, the lowering of interest rates and the real estate bubble that followed, and what this tells China's economic planners about managing the renminbi. A academic member of the People's Bank of China, Yu Yongding, sees one of the lessons as how Japan mismanaged the aftermath and creation of the asset bubble. There may be different complexities in China's situation with the increase in local government debt and loans in the shadow banking system, so that China cannot become complacent.

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Dow Chemical CEO Liveris says he sees signs of recovery in China in 2013. He says small and medium sized businesses in China have better access to financing in Dec. 2012 after a period of destocking and hard times accessing credit.

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Euro which ws 82 cents to the USA dollar in 2000 has fallen by 35 cents to $1.27 in 2008. But say analysts it has a lot further to fall as European economies contract in 2009.

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China's shift in emphasis from heavy manufacturing and the auto industry to other technologically advanced and less environmentally sensitive industries including new energy sources. The National Development Reform Commisson lists industries in 3 categories- encouraged, allowed, and restricted. The auto industry is now in the allowed or permitted category, and is no longer encouraged for the purposes of foreign investment and the granting of preferential tax or streamlined approval processes. Alternative energy cars, internet equipment and some service industries are moving to the encouraged category. The growth in the auto industry has slowed to about 3% in 2011 from 32% in 2010, with the change hitting the domestic Chinese brands the most. As a result more laws are expected to help technical know-how flow towards Chinese auto companies, according to IHS Automotive.