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The situation for the day before the Iowa caucuses on Feb. 1, 2016, with voter turnout playing a key part in the election primary.

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Moody's senior analyst based in Beijing, Yvonne Zhang, says China's National Audit Office's estimate of the banks loans as part of China's total local government debt of 10.7 trillion yuan ($1.65 trillion) is understated. The Audit Office estimated bank loans to be 8.5 trillion yuan. Moody's says this is understated by 3.5 trillion yuan or about $540 billion. Moody's sees the delinquency ratio of these loans between 50 and 75%. With these figures it sees 8-12% of bank loans in China's banking system as non-performing loans.

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As part of the effort to become more competitive with Asian automakers, VW is using new strategies with labor to reduce costs. VW made a one-off payment of about 6,300 to each of 80,000 employees at its western German manufacturing plants. In return VW secured union agreement to change work schedules at the plants to 33 hours a week from 28.8 hours, without having to make a pay increase. This is part of concessions being made by labor as Germany tries to improve its competitiveness. VW's second largest shareholder is the German state of Lower Saxony, and VW makes many automobile parts in its German plants in addition to automobile assembly, making employment a major issue for industry, labor and government.

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China's economic planning agency, the National Development and Reform Commission, has approved $156 billion in new infrastructure projects, new subways, highways and other projects in recent weeks. The response is more carefully planned than the stimulus projects in 2009-2010, which are now seen as excessive response creating the prospect of bad loans in the banking system and causing inflation. The stimulus spread over 2 years, 2009 and 2010, was by government's initial estimates about 4 trillion yuan and this does not include additional local government spending as the government encouraged spending. This time the stimulus is about 1 trillion yuan or $158 billion, 2% of GDP, spread over 4 years, with projects going through careful review, according to Nomura economist Zhang Zhiwei. The Chinese government wants to avoid losing gains made in controlling a property bubble and holding down inflation.

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Fed Governor Kevin Warsh who is an investment banker and was an important participant in shaping the Fed's response to the credit market crises commented about the crisis and what lies ahead at a New York University conference. The credit crisis poses meaningful downside risks to the econmy and especially now as the crisis developes to small businesses and consumers he said suggesting that consumption spending is likely to take the next big hit. He sees credit replacing liquidity as the primary antagonist. For financial markets the curative process is unlikely to be swift or curative. Underscoring the problems ahead- he said we are fighting against the wind. The Fed does not know what to expect whats the next crisis around the corner, as each time things settled down in the last 6 months something else developed because of the crisis in confidence, the perception that the financial architecture itself is not working, and fragility of credit markets. Telling is his remark that a new financial architecture born of the forces of creative destruction is in the early stages of construction. More creative destruction lies ahead before all participants, the mortgage industry, political parties and poiliticians, lenders and financial institutions, homeowners, and the public can be persuaded that some sacrifice will be required of all and things that normally would not be palatable will have to be swallowed to help forge a solution that avoids a downward spiral....

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Experts say there may not be much difference whether a voluntary deal is reached between Greece and the Institute of International Finance or a deal is forced on private bondholders by Greece for the 93% of Greek bonds that are based on Greek laws. Most of the large banks that hold Greek bonds will be subject to persuasion by European authorites (EU, ECB) to accept the deal offered by Greece that brings debt down to 120% of GDP by 2020. The remaining holdouts are the hedge funds that will want to opt out of a voluntary arrangement anyway, because a forced deal by Greece would allow them to collect payments on their credit default swaps. Adam Lerrick, an expert on sovereign debt restructurings, says the hedge funds and other private bondholders are framing the discussion into one of a voluntary agreement that is orderly and an involuntary agreement that is disorderly, as a tactic to scare the European authorites (the EU, ECB) and Greece. He says not only can forced restructurings be orderly, but in this case the improved prospects for Greece with serious debt reduction would lead to a ratings upgrade for Greece. Some hedge funds have said they will sue if forced into the deal. Michael Waibel, at the Lauerpacht Centre for International Law at Cambridge University, says the case would first go to Greek courts where it would be received without much sympathy, and then to the European Court of Human Rights. Only the small number of bonds under Swiss and English law with pari passu clauses insisting on equal treatment of bondholders have any prospects, and even then legal enforcement of any awards is uncertain as shown in the case of Argentina. The 93% of bonds under Greek law have no such clauses and this gives Greece the option for special treatment of bonds held by the ECB....