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The IMF extends $100 billion in loans to countries that have healthy economies but need temporary help, such as S.Korea, Brazil, Mexco and Singapore. Some of these countries have borrowed heavily in other currencies and the drop in the value of their own currencies makes repayment difficult. No strings such as requirements to raise interest rates and to cut public spending are attached to this program. Under this program countries could borrow five times the amount they are normally entitled to, $25 billion in Brazil's case, without the strict conditions that normally accompany such loans. Nobel Prize winner Stiglitz was chief economist at the World Bank. He said the funds use of the words restore confidence itself could make a lot of countries nervous. That is because in the Asian and Latin American crises in the past, the IMF set strict conditions to increase interest rates and cut public spending and food subsidies at a time when the poor especially and the rest of the people, all needed help, thereby increasing public distress. In the developed countries stimulus packages and infrastructure spending goes up to support employment and incomes, but the IMF has advocated quite the reverse in the case of the developing countries, with the US Treasury a key factor in IMF support and ideology. Which is why countries in Asia like South Korea see a stigma attached to the IMF and are refusing IMF help. In Pakistan also the IMF support is a last resort or Plan C. Iceland for instance raised rates in return for IMF help from 6% to 18% to try to stabilize the currency. The IMF was created as part of the Bretton Woods agreement of 1944 when the Allied Powers USA and Britain and other countries that sent representatives met in New Hampshire for a postwar economic system. Japan, S. Korea, India and China and many other countries were not part of it because of the war or colonial empires....

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THe Fed is pumping new money into the financial system. $800 billion of new money over the past seven months, since September 2008. Last week it said another trillion dollars or more could be added int he months ahead. The way this works is the Fed purchases securities or other assets from securities dealers in exchangefor electronic credits that amount to cash and are deposited in banks. These cash credits known as bank reserves have jumped from $3 billion in August to $776 billion by mid March 2009. This week it said it would buy $1.25 trillion of mortgage backed securtities backed by Faniie and Freddie, and $200 billion in debt issued by these firms. And also buy upto $300 billion of longterm debt issued by the US Treasury. THe idea is to drive down longterm interest rates. All the while the Fed is not printing money in the old fashioned way- Federal Reserve notes also called dollars only increased to $862 billion from $793 billion. Still it is increasing the banks reserves in this way. And these mountains of cash in reserves are sitting in the banks as there is not much lending, and consumers are reluctant to borrow and to spend, and with all that unused production capacity there is little chance of inflation. When the economy recovers the Fed hopes, if all works out as planned, to pull that extra money out of the system and pushing interest rates higher before inflation settles into the system....

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The Cleveland address and question answer session on July 10, 2011, showed Janet Yellen at her best. She was applauded several times for her answers especially for her emphasis on clarity. One question was about the use of the term"quantitative easing," couldn't the Fed have found a better word? Yellen pointed out that the Fed at the time used "buying of long term assets" as the phrase for that activity, after the media referred to it as "quantitative easing." That term stuck and the Fed ended up accepting the use of the term to refer to the Bernanke Fed's program. Yellen also said the buying of long term assets was intended to raise long term rates, and was different from the effort in Japan of buying short term assets that failed to stimulate the Japanese economy. Throughout Yellen was entirely comfortable making clear what she had in mind. At one point she was asked about the IMF director Lagarde's statement that the U.S. is better off not raising rates in 2015, because of the uncertain economic outlook in Europe, China and other places. Yellen's response was that this was one more view that she considered along with the views of several other Fed governors who had different views and reading of the economic situation. She emphasized that the increase in the rates will be very gradual, a position very consistent with her earlier statements, and this made the long tem path of interest rates more important said Yellen, than the particular time when the Fed first raised rates. For her clarity, empathy, and sound grasp of the economic situation, few Fed chairman have come close to Yellen, as was evident in the audience's grateful response. ...

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David Wessel says the U.S. is in a liquidity trap. He says the 500 point drop in the Dow Jones Industrial Averages was a less significant event than the decision by the Bank of New York Mellon to charge clients for keeping large amounts of cash. In a liquidity trap investors are indifferent between keeping their money in cash or in investments providing a return, because interest rates are so low. Today the S&P 500 have in total an estimated $963 billion in cash. The solutions for gettting out of a liquidity trap include government stimulus spending, devaluing the currrency, and generating inflation that could make it easier to reduce government debt. The stimulus approach was adopted in the first 2 years of the Obama administration and there are now increasing pressures to reduce the U.S. deficit. Because of the role of the U.S. dollar as an international currrency and large sovereign holdings of U.S. currency, an outright devaluation of the dollar has not been considered an option. At the same time the weakening of the U.S. currency has helped exports and is encouraged by the Fed and the U.S. government. In a sense all three options are being tried in different degrees and ways. The stimulus was the early response till the deficit concerns began to increase and require attention, the efforts to lower the value of the dollar to increase exports is underway, and the rounds of quantitative easing by the Fed were intended to produce inflation (and avert deflation). All with limited success....

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At the core 66% of people in the US, UK and in Germany, 77% in France, Italy and Spain  in Pew Research in 2024 see the need for big economic changes. Inequality increase are often automatically seen as correlated with deterioration in standard of living. However in practice cost of living concerns and opportunity to do something about it can move in the opposite direction to inequality increases. Cost of living can improve based on gas and electricity prices and access to housing with lower interest rates independent of whether government is or is not intervening in the economy. Some interventions may not work as in the supply side shocks in prices from Covid lockdowns or simply exhaust people's patience without sufficient timely correction. A disquiet index can also move in a different direction from inequality increases when cost of living raises disquiet levels for people, and cultural issues such as transgender in schools create  additional disquiet. Failure to get bipartisanship may leave inequality issues unresolved as happens with one group student loan borrowers stuck in repayment.  In this sense inequality is only one goal and can be elusive if the overall goal of reducing disquiet index are left unresolved. A better quality of life can be achieved in other ways- as with the effort for "a rising tide lifts all boats." This can include the ripple effect of international politics where issues spill over into the US creating cultural disquiet on campuses as happened in 2024 with Israel Gaza conflict. The interplay of local and international starts adding complexity that adds to disquiet index for people in all levels of society.   ...

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Mexican billionaire Carlos Slim will provide $250 million to New York Times in return for warrants that can be converted into 15.9 million common shares at a strike price of $6.36, close to where the price was last week. The notes carry a interest rate of 14% and are due in 2015. The Sulzbergers control 19% of the company's equity and control the company through super-voting shares. If Slim exercizes the warrants he would control 18% of the company's equity. Times faces a liquidity crisis and the $250 million may not be enough for it to survive as an independent company. The New York Times borrowed heavily in the boom years and it had $1.1 billion of debt at the end of September 2008, and only $46 million in cash. Much of that debt is coming due in the next couple of years. It has a $400 million credit facility that expires in May 2009, $250 million in notes due in 2010, and a $400 million credit facility expiring in 2011. Its stock has fallen 50% already and its debt is rated "junk" by S&P....

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The Dow Jones Average in the US went up by 11.3% since August 26, 2010, in anticipation of the Fed's quantitative easing, and the Republican win in the House and a filibuster capable 41 seats in the Senate. But on the eve of the midterm election in the first week of November 2010, the mood is changing. There is considerable concern that the Dow Jones average may have gone too far. Experts question the advantages of gridlock in Washington, especially when strong government action may be necessary in a crisis. And there are questions on how effective the Fed can be this time when the interest rates are already near zero.

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Brazil's debt at 57% of GDP which is not likely to decline in 2014, is a concern for analysts at Moody's. Heavy spending and lower tax revenues with high interest rates will increase the deficit to 3.7% in 2014 from 2.48% in 2012, according to central bank estimates. Inflation is about 5.98%. Trade surplus is lower at about $2.6 billion for 2013. Brazil's foreign reserves are much higher than Argentina at $359 billion, ten times short term debt, Argentina at 109% of short term debt and Turkey at 84% of short term debt- which protects Brazil compared to its reserves in the 1997 financial crisis.

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Legislation advanced by Senator Dick Durbin of Illinois would allow bankruptcy judges to lower principal and interest rates on mortgages and extend the loan period. Of 10 million homeowners who are having trouble making payments new bankruptcy law changes would help 800,000 troubled borrowers keep their homes, according to Mark Zandi, chief economst at Moody's Economy.com. With the government's loans of $45 billion to Citigroup it has more leverage on key banks in the banking industry. As a result Citigroup which had earlier opposed the change in bankruptcy laws to make this possible has now changed its stance. Vikram Pandit Citi's CEO stated yesterday that "we support its swift passage."

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Jerome Fons rates the credit rating agencies F for failure, and says its time to leave out ratings language from financial contracts. Its time to rely on good judgement. He is former managing director of Moody's. The system is rife he says with conflicts of interest and the whole system has failed and is still in failing mode. The finacial system he says can function without letter ratings, regulators and investors should consider all the relevant information about an investment including market prices. And he says lets return to the tool we all used before we delegated responsibility to ratings agencis, and this tool is our better judgement of things.

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Diesel prices are regulated and subsidized by the Indian government, but gasoline prices are deregulated since 2010, resulting in gasoline costing 64% more than diesel in India. As a result buyers are staying away from gasoline cars and shifting to diesel creating distortions in demand. The government is considering a tax on diesel cars and SUV's of between $3000 to $4600 to correct the distortion. Because lower income people woud be hurt by increasing the price of diesel it continues to be subsidized. Because of the uncertainty car manufacturers are shutting down production to reduce growing inventory of gasoline vehicles. High interest rates of 12% on car loans also reduces demand. Suzuki Maruti sales declined 6% in May 2012, Ford and GM showed sales declines of 14% and 20%. The year ending March 2012 shows Indian car sales growing only slightly by 2.2% to 2 million cars. Sales were rising at 29% only about a year ago. Gasoline costs 68 rupees a liter in New Delhi after a 11.5% increase in May 2012, compared to 41 rupees per liter for diesel. The increase in gasoline prices is a result of the government having difficulty paying the rising imports of oil, costing $141 billion for the year ending March 31, 2012. The sharp slowdown in the car industry and the problems in the energy sector have affected India's growth rate....

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The ECB's Long Term Refinancing Operation is working as planned with the lowering of borrowing costs for Italy and Spain. Spanish government two year bond yields are down to 3.3% in January 2012 from a high of over 6%. Italian government two year bond yields have declined to 3.9% in Jan 2012 from a high of 7.8% in November 2011. Experts say the response is much more positive than the market was expecting. Morgan Stanley anaysts expect the banks to borrow extensively when the ECB makes new loans under this program in February 2012, which they estimate could reach 400 billion euros. Spanish banks are expected to borrow 15-45 billion euros to use for buying Spanish government debt, which would take up about half of the debt Spain needs to issue in 2012. For the banks the 3 year loans at 1% interest with flexible terms for collateral given to the ECB, offers a way to earn higher interest rates on sovereign government debt of their national governments.

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Carney breaks down Fannie Mae's 2013 earnings figures of $84 billion to show that this is due to unusual factors- such as low interest rates that it gets to access capital from the government, and the reversal of a write-down of deferred-tax assets. $45.4 billon is from the reversal of a writedown of deferred tax assets, $14.6 billion to gains not easily repeated, and about $12 billion because Fannie was able to borrow at 2.06%. (Mortgage securities generated interest income of $22.12 billion. The mortgage guarantee business generated about $12.3 billion which is a result of the 2012 change to the bailout agreement terms) He sees Fannie's core earnings that it could keep generating at about $12 billion. The additional reserve capital requirement that it would face as a systemically important or "too big to fail" financial institution at about $100 billion, making it about 8 years for it reach the reserve capital requirement. The situation at Fannie Mae is not as rosy as the 2013 earnings figures suggest. ...

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How the government under Secretary Paulson's plan will restructure and financially support Fannie and Freddie while gradually winding them down. Secretary Paulson says that it would be a grave error if we did not use this time to permanently address the structural issues presented by the G.S.E.'s a reference to them as government sponsored enterprises. Government support said Paulson has to be explicit or nonexistent.To wind them down the plan calls for reducing their portfolios by 10% a year. In return for $1 billion in senior preferred stock from each company to the government which pay an interest rate of 10% at least the government is committing $100 billion to each company to cover future losses. The government also receives warrants that allows it to to buy upto 80% of the stock of each company at a nominal price of less than $1 a share. Beginning in 2010 both companies will pay a quarterly fee to the government in return for financial help. Senator McCain had some words for the people running the companies: "its an example of cronyism, special interests and lobbyists. A quasi governmental organization where the executives were making hundreds of some billion dollars a year, while things were going downhill, going to hell in a handbasket." ...

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Greenspan's legacy is called into question with the bursting of the housing bubble which he had not expected and the growth of subprime which he did little to slowdown. His libertarian spirits took a dogmatic view of free markets that said that the best approach was an handsoff one. This conflicted with the proper monitoring and supervision of rapid growth of subprime and the abuses that went on in the market for mortages and mortgage securities. He was also slow to raise rates after the rate cuts were down to as low as 1% which fueled the housing boom. Greenspan actually felt the borrowing on home equity loans for consumption was a good thing but failed to see the excesses in consumption spending and dangers of a negative savings rate. He felt that it was necessary to keep rates low to keep deflation from happening at that point in time. He was too complacent and in the position for too long to do the job well for so long. He was appointed by Reagan in 1987 and retired in 2005 three years ago in this role for 18 years. Could the Clinton or Bush administrations have chosen a fresh face who could have performed quite well and had to prove himself and not become complacent in a wave of adulation during good times? He argues that is decision making process was sound. This showed in the LTCM crisis and during the 9/11 crisis. But what went wrong were that his assumption about the goodness of human nature inherent in an innocent view of free market innovation where only the best happens ignores the possibilities of bad things happening when this innocent innovation is converted into a negative kind of innovation by human greed as happened in the mortgage securities market. And the lack of transparency that can creep in when a watchful eye is taken off the financial machinery and it is left all to its own devices as when these mortgage securities were made complex and dispersed in protfolios all over the global financial in places like Nordic towns in Arctic Norway as well as in far off places in Asia. So the basics: careful watchdog role, continually reassessing things like the patchwork of regulation that Secretary Paulson criticized recently fit for 10-20 years ago, getting interest rates right etc requires a good mind, some grace and a fresh face and energies that a man close to 80 years in 2005 after 18 years in the position got too complacent, overstayed and in the end made crucial errors of judgement and wisdom that his libertarian logic may have made all too easy. ...

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Greg Ip of the WSJ provides this exceptional report offering readers remarkable clarity on what the Republican Tax Law does- its high and low points.  High Points 1. It reduces the corporate tax rate to bring it in line with other advanced industrialized countries. The corporate tax rate in Germany and Japan is 30%, in the UK it is 19%. For 5 years businesses can write off capital equipment immediately instead of depreciating over a couple of years. This could boost investment and growth. 2.  The law takes aim at deductions that led to distortions. It limits the mortgage interest deduction, and caps the deduction for state and local taxes. This removes the incentive to pay more for homes that exacerbated the housing crisis in 2008. The Alternative Minimum Tax is largely removed. The Low Points 1. The biggest drawback is that lawmakers did not properly fund the tax cuts. Of the 10 costliest tax breaks nine were not touched, including employer health insurance, retirement savings, capital gains. Only the state and local taxes deduction was reduced. And a new tax deduction  was created, a 20% tax deduction for small business (proprietors and partnerships) paying taxes on their individual tax returns. Taxes on the wealthy or value added taxes, reducing tax breaks, is how other advanced industrialized countries paid for the corporate tax cuts, but did not happen here. Additional economic growth  to generate added tax revenues is the way Republicans in Congress say this is funded. Yet this is a questionable assumption as Britain reduced the corporate tax rate to 19% without seeing a surge in economic growth, as Greg Ip pointed out in an earlier WSJ article. At best the Joint Committee on Taxation estimates $500 billion over a decade in added revenues from added growth leaving $1 trillion to be added to the deficit. The WhartonPenn Budget Model (WPBM) estimates only $140 to $367 bill from the additional economic growth resulting in added tax revenues. Under this model only 0.03 to 0.08 percent added U.S. economic growth per year is expected from the Republican Tax Cuts. Such a situation would be bad  for the U.S. as the gradual improvement in Debt to GDP ratio to 78% following the financial crisis of 2008 would be sharply reversed taking the ratio to 97% by 2027. An unsustainable trajectory which will require tax increases in a few years and hurt investment in education, health and infrastructure into the future. This is what worries many experts most on both sides of the political spectrum today about what the Republican Congress has pushed through for a legislative "victory." This is why experts believe this is not serious tax reform and will require a new effort after 2019.   ...

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Turkey's currency Lira dropped to 7.2 to the dollar on August 13, 2018, taking the drop in the currency in 2018 to about 70%. About 90% of Turkey's debt with foreign lenders is denominated in foreign currencies. Turkey is highly dependent on money from overseas to finance growth and credit. 

The risks increase with higher interest rates in the U.S. and the falling value in the Lira which makes it harder to pay off debt. Turkey faces loss of confidence from foreign investors as its relations with the U.S. deteriorate in a tariff war with the U.S. increasing the focus on factors long ignored by American and European investors such as its high dependence on dollar denominated loans.

Analysts say the problems in Turley are unlikely to be systemic for all emerging markets because Turkey's problems are unique with questions about the management of the economy and the authoritarian rule of president Erdogan.  

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Norris provides an insightful account into the research and thinking of Janet Yellen, the new chairwoman of the U.S. Federal Reserve. In her research work Fed chairwoman Yellen has placed importance on the long term unemployment rate and the difficulties workers unemployed for long period have in finding work. This is likely to determine Fed policy on interest rates as the unemployment rate inches closer to the Fed target of 6.5% set by Bernanke in Dec. 2012. Norris points out the emphasis Yelen has placed on this in speeches since being nominated to succeed Ben Bernanke at the Fed. In a recent speech Yellen emphasized that in the recession of the early 1980's median time unemployed people said they were unemployed was 12 weeks, which jumped to 25 weeks for about 6 months in 2010 and is at 17 weeks in the most recent jobs report. Another indicator Yellen has emphasized is labor's share of income in the nonfinancial corporate sector which remained between 66% and 61% from 1950 to early 2000's. This fell below 60% in 2005 and is at 57.1% barely budging from the 2011 figure. In papers written with George Ackerloff, Yellen has advanced the "fair-wage hypothesis," that workers do not do as good a job when wages are held down. Their research also shows its normal for workers in periods of recession to hold out against the lower salaries offered during recession periods, because these workers tend to fall behind newer workers hired with better wages later when the economy recovers. At the confirmation hearing Yellen made it clear that the Fed would do all it can to help the long term unemployed by creating a stronger job market, a job market where these workers would be drawn into work and employers provide job training as well as opportunities for advancement....

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Moody's Investors Service estimates the cost of fuel subsidies to increase to 1.7 trillion rupees or $24.7 billion for the Indian government in the next fiscal year beginning April 1, 2013, up from 1.6 trillion rupees the prior year. This is the result of the rapid depreciation of the rupee in 2013. The rupee depreciated by 8% between Aug 25-Aug 28, and is now at 68 rupees to the dollar. A new Food Security bill that passed the lower house of parliament provides subsidies for grains to about 70% of the people, and will cost $20 billion, up from $16 billion for the prior year. Government borrowing costs are up. Th yield on 10 year bonds maturing in 2023 was at 9.44% on Aug. 21. The rupee depreciation is a result of the wide current account deficit of about 4.8% and India's dependence on foreign borrowing to finance the deficit. A pull back of foreign investors from emerging markets is happening after the U.S. Fed announced it was planning a winding down of its easy monetary policy and low interest rates. Because India imports 75% of its oil, the depreciation of the rupee will hurt government finances. The danger lies in what this does to the growth rate at a time when growth is alreeady slowing. In the current year ending March 31, the growth rate declined to 5% from 6.2% the prior year. A poll of 18 economists conducted by the WSJ found growh estimated to be 4.6% for the second quarter of 2013. India is the second most populous country in the world and faces huge needs for infrastructure and development, and needs to create millions of jobs for new graduates....

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This editorial by the Washington Post says private equity taking risks on troubled firms is Capitalism 101, and fulfills the role of "creative destruction" in capitalism as it functions in the American system as compared to the European system. It says private equity's gains in its investments are taxed as "carried interest," at a lower rate than ordinary income, and this needs to be changed so that government does not favor private equity investments.

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Michael Boskin of Stanford University, chairman of the Council of Economic Advisors under the elder Bush, on the risks of protectionism and higher taxes to the economy in the long run, and the need for the Fed to balance the need for providing help with rate cut with the need to keep inflation at low levels. He suggests workouts of the losses from subprime mortgages not bailouts is the correct answer. P.S. A note on December 6, 2008, after the crisis with Bear Stearns in early 2008, and the severe October credit crisis and a series of bailouts of banks, financial institutions and the Detroit auto industry. If one looks for the thinking that was behind the Republican Bush administration's early stand to take no proactive steps to improve things in the economy, then Boskin's article summarizes some of the thinking behind it. Lowering rates at the time except gradually,after the Greenspan moves in preceding years to lower rates and let them stay that way too long (leaving too much liquidity and loose lending in the financial markets), was not to be taken lightly with additional concerns of pushing inflation upwards. And Boskin way underestimated the losses from subprime in December 2007 when he used the estimate of $300 billion investor losses centred in real estate made by the OECD at the time, or as he puts it just one-half of 1% of American's net worth. Concluding that in a $14 trillion economy such losses could be absorbed. He anticipated delays in financing and the need to mitigate that but did not anticipate a collapse of credit markets. Part of this may stem from not realizing the impact of highly leveraged debt on the books of financial institutions and what it could do if fear gripped the financial markets, and underestimating the impact of subprime debt with mortgage securities that had no transparency and distorted credit ratings. Which is why he says that policy should be for workouts not bailouts, emphasizing that the worst idea out there is for a broad interest rate freeze for mortgage borrowers which would throw into question the sanctity of private contracts and thus deter investment. This policy of resisting loan modifications continued as policy of the Bush administration even as Martin Feldstein, another Harvard economist and Reagan administration economic advisor, advocated just that from early 2008 with repeated oped articles in the WSJ throughout the rest of the year....

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Parussini describes the different style of new RBI Governor Urjit Patel, who is no rock star economist like his predecessor Raghuram Rajan. Rajan is quoted as once saying; "My name is Raghuram Rajan and I do what I do." Rajan engaged widely with the media. At his first press conference Patel made a short statement thanking RBI staff, and turned it over to staff at RBI who talked about financial supervision, banking regulation and other issues. Patel's answers were short without follow-up questions, the whole event over in 20 minutes. Patel was chosen by the new government of prime minister Modi to run RBI in 2016.

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This editorial after the devaluation of China's currency by 1.9% on August 11, 2015, says this could be a result of several factors- a sense that the yuan is overvalued after the decline in value of the euro currency and the Japanese yen, anticipation of rising U.S. interest rates that would affect emerging markets, and a reaction to slow growth. It cites as especially important to the Chinese leadership and president Xi Jinping and premier Li Keqiang, the July economic data that showed China's exports down by 8.3%, also reflected in declines in rail cargo and electricity use. Producer prices declined by 5.4%, another source of concern for the government. This follows the stock market volatility affecting investor confidence.

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There is a serious risk of an abrupt reversal in the appreciation of the currencies of the Latin American region. The Brazilian real and the Chilean peso have appreciated significantly since the 2008 crisis. Large inflows of capital into emerging markets have led to the appreciation as investors looked for higher interest rates. Asian demand for iron ore, copper, soyabeans and other commodities also pushed up the value of Latin American currencies. The IMF issued a warning in April 2011 about the high risk of an "abrupt end" to this if commodity prices declined or capital inflows dried up. Gray Newman, the chief Latin America economist at Morgan Stanley sees the risk of a sudden steep reversal.