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Retirement and close to retirement planning for 2015 from Jonathan Clements of the WSJ.

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Daniel Altman's proposal for a tax on wealth over $1 million. He makes the case for taxing wealth not incomes to reduce inequality as this is where the situation in terms of inequality has worsened for the U.S. in recent decades. To support this proposal Altman cites the change in the U.S. Ginni coefficient, which measures inequality. The Ginni coefficient is anumber from 0 to 100 which goes up with higher income inequality. From the late 70's to the 1990's, the Cnesus Bureau showed this to be in the low 40's. By 1992 the Ginni coefficient went up to the mid-70's, according to the Federal Reserve data. It increased to about 80 in 2010. In 1992 the top 10% in the U.S. population controlled 20 times the wealth of the bottom 50%. By 2010 this figure triples to 65 times. and the graduated income tax even if it redistributes a small share of the wealth does little to affect the trend of wealth extremes from building up and threatening the social fabric of America, reducing mobility and opportunities for the bottom 50% to unprecedented levels since the 1950's. ...

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As the Obama administration plans a large stimulus spending plan that may approach $1 trillion over several years, considering also the second phase of the $800 billion first phase stimulus, there is a concern that there may be wasteful spending and social costs of borrowing and spending by the government of such proportions. In economics jargon this hinges on whether there is amultiplier effect of spending, higher if its efficiently and well spent with less impact on private consumption and investment, and lower if the opposite were true. The assumption behind amultiplier of 1.0 for an additional bridge or road is that resources like manpower and capital that would be otherwise idle are deployed to produce something useful. An increase in one unit of government purchases increases by one unit the real gross domestic product. The government has effectively created the additional bridge or road without a cut in anybody's consumption or a businesses investment. The other contrasting approaches are to say there is a multiplier of zero, meaning there is a social cost in two ways. One the reduction of consumption and the crowding out of businesses investing in new products and technologies for example, and second in the inefficent use of resources if a government bureaucracy is put to work allocating money and the additional dangers of favoritism and corruption. To say that there is a multipier of 1.5 would mean that the government figures out a way to get private investment through conversion of plants for automotive parts say to make wind turbine blades by giving incentives, tax benefits and grants, spends on a dilapidated road and public transportation infrastructure that may provide benefits in increased growth capacity over future years. The limits of a government bureaucracy and inefficiency of government would in this case be addressed by transparency rules adopted and measures that track progress that are freely available to all citizens say on a website on the internet, and by bringing in fresh management talent from the private sector. There appears to be no generalization that can be applied for one multiplier for all projects. It may be that the multiplier will vary with the project. Some projects like the conversion of a factory making unneeded auto parts to a badly needed wind energy part, to change the dynamics of energy market pricing, to meet energy needs and cut emissions, may end up having a multiplier much above 1.0. A redundant or less needed bridge has a lower multiplier than a bridge rebuilt before it leads to breakdown. And also the complication that too large a movement in one direction say of stimulus spending, might result in a shift of the curve towards a smaller multiplier and diminishing returns, as the resources to track such a large expenditure and the talent to adminster are overextended. The social cost of private investment not making that investment in new technology, new product or improved product has to be figured into all this, both at the conceptual level as all costs and benefits may not be picked up in the analysis, and at the macro level keeping in mind that the animal spirits, as they were once described, may just not be there to absorb the huge outlays which a government can make. These do not come without an opportunity cost and borrowing costs. All this leads one to to conclude that spending has to be carefully evaluated and projects assessed on a case by case basis for costs and benefits. The spending has to be balanced to provide just as many incentives for private investment to invest in new products and technologies. One way the Obama team is attempting to address this is to include a $300 billion tax cut for businesses and individuals. The business tax cuts are aimed at helping small business with losses, and for future investments and making hires and forgoing layoffs. The other part relates to careful evaluation of spending projects and transparency so the people can see if they are effective. See the link to this....

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Prices for WTI crude dropped below $50 in January 2015. Higher inventories weighed on oil prices and Saudi Arabia added to the pressure by cutting the price of crude sold in the U.S.

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Kristof says social ills- the lack of stable marraiges, drug use, poor day care resources- compound the problems of lack of education beyond high school in America's white underclass. The lack of good manufacturing jobs and lower wages have hit people with only a high school education the hardest. Two decades of decline in good manufacturing jobs with globalization have hit this part of the population in the U.S. hard creating increasing inequality in America. He sounds a Moynihan type call to the plight of America's poorest white communities.

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A local government vehicle in China, Sixth Division of XPCC fails to make a bond payment in August 2018. This is the first such instance of failure to make a bond payment for a local government vehicle in 2018. Economists estimate China's total debt at 242% of GDP in 2017, and government efforts to tighten liquidity and reduce support for overextended local government investment vehicles.

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The Economist points to a second hit from bad debt in the post 2008 stimulus binge of spending in China. This is after an earlier hit, that was absorbed as a result of high growth rates and high savings. About $420 billion was injected into 5 state owned banks since 1998, according to one estimate, as a result of the first hit to China's banks from bad debt. In this second round of bad debt, covered in more detail by David Barboza in the New York Times, and merely alluded to here, many bad loans to infrastructure projects were rushed through by local governments. The Economist considers this one of the successes of the state directed banking system, that loans were quickly made and projects started in the post 2008 crisis period; and expresses the view that this hit will be absorbed just like the last hit. However the more detailed account by David Barboza and in Business Week, points to the working of a system of incentives gone astray in a capitalist system without the necessary controls or regulation. Local governments used investment companies to take on loans, which were then used to prepare properties to be auctioned off at a profit and speculative prices to state owned companies in different industrial sectors. This is part of rampant speculation in China in real estate markets. Can China with its high savings and growth absorb a second hit? This depends on the magnitude of the hit and the size of the bad debt, which depends on how long this speculative market continues to operate, and how bad debt is hidden in the books. The difference this time is that large state owned companies in different industrial sectors are engaged in this speculation. The other difference is that the high growth rates in China depend on continued large trade deficits with the USA and Western Europe, something which is not likely to continue for long, as consumers in Europe and the USA with high debt are becoming cautious spenders. This suggests that China, like the US with the mortgage crisis, faces the same effects of unregulated or uncontrolled speculative behaviours, that can endanger the banking system....

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Rapidly increasing credit to GDP ratios between 2008 and 2012 in Hong Kong, Singapore, Malaysia, Thailand, and Taiwan.

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Comments by the banking sector and the central bank of Canada on the Volcker Rule.

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Pearlstein quotes Dickens in "Oliver Twist," about the law being an ass, and the constitutional law exercize in the Supreme Court of the U.S. giving a sense of a failure of the so-called best and brightest in reasoning out the issues. He points out that a serious problem is that American business which is burdened with high health care costs for employees is seriously missing in this debate after years of complaining about high costs. The National Federation of Independent Businesses is actually one of the plaintiffs questioning the constitutionality of the Obama health care law. Pearlstein says business wanted an end to the fee-for-service medicine that increases consumption of medical services and pushes up cost relentlessly, and that Obama's health care law does this. This is not the case as both Democrats and Republican administrations have failed to resolve this side of the cost issue, and this is the hidden reason for the loss of credibility for both sides in this debate, leaving health care problems to be resolved in future administrations. ...

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Sharp drop in oil prices in Dec. 2015.

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Jeremy Stein tells Eisinger that it is important for the Fed to recognize when a bubble is taking place and take action including jawboning and regulatory action to limit bubble behaviour in capital markets. Fed chairman Yellen did this for social media stocks and bio tech sector stocks in 2014 by pointing out that that the rise in stock prices were excessive, resulting in a pullback.

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The Bank of International Settlements warns that China's "credit to GDP gap" is 30.1. A figure of 10 normally is considered to be high and needs watching. The People's Daily carried an article presumably by president Xi Jinping warning about the consequences of the debt that had been growing "like a tree in the air." The debt to GDP ratio was at 255% at the end of 2015, and is up 107% since 2008 when the financial crisis led to a huge stimulus that has accelerated debt growth. The corporate debt is at 171% of GDP. The article in the People's Daily warned about reflexive stimulus every time growth slows and said that China cannot any longer "force economic growth by levering up." Cross border liabilities is one area of progress falling by a third to $698 billion, as companies cut debt quickly before the U.S. Federal Reserve raises rates. In the future China is more likely to roll over debt as Japan had done following its debt surge and bad debt with zombie companies, which would in turn lead to lower growth. In the past the government was able to absorb the growing debt because it was not as high as it is today, and the economy was growing rapidly. This is no longer the situation, the reason for alarm at the situation facing China. A spike in interest rates of 250 basis points is cited as one situation which could affect China adversely. ...

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Zombrun describes the effect of low interest rates on savings for the bottom half of households in the U.S., the pressure to invest in stocks without the skills and experience of the better educated part of households in the top 20% of households by wealth and income. This resulted in a negative effect, a depletion of savings compared to an increase under a higher interest rates scenario with less pressure to take risks in a volatile stock market. This is the direct cost of the crises in stock and financial markets of 2000 caused by a internet bubble, and the larger crisis of 2008-2009 caused by the bubble in mortgages and housing. The secondary effects of the mortgage price bubble and faulty mortgage securities was in the millions of homeowners who went into foreclosure in 2009-2013, which further depleted wealth and savings of households in the bottom half lacking the experience and skills to navigate this type of housing market. The failure of the Obama administration to stem the foreclosures with practical steps which would have helped not hurt the banking sector, as suggested by FDIC's Sheila Bair and Harvard economist Martin Feldstein in many WSJ op-eds in 2010-2012, added to the erosion of savings and wealth of the bottom half. Minorities in particular were hit hard. A third effect is of communities across America that are feeling the effects of job migration to emerging markets such as China that has been underway as part of the globalization of the last three decades. A fourth effect in the rising cost of education, particularly since 2000, has reduced the opportunities for struggling working class people to enter the middle class and enjoy the higher incomes in precisely the very period when the divergence of incomes between less educated, less killed people and the more educated and better skilled people was taking place. The last two effects were neutral as part of the overall process of emergence of a globalized economy with a premium on more skills and education, requiring action by the government, universities and business for a concerted effort to mitigate in some places the negative effects and enhance in other places the positive effects. The first two effects were man made crises which required managing in constructive and positive ways for the entire American people, taking risks where necessary such as fears about the financial system if foreclosures did not go through. The risks of a long period of extremely low interest rates for savers and the middle as well as working class were poorly understood by the Fed since 2000. A similiar crisis is being faced in Europe with extremely low interest rates. Janet Yellen was only doing the honest thing by acknowledging how far and how different the situation is now compared to the period of three decades following 1945- a question not just of values cherished in America, also of the need for societies to advance through creation of wealth across all sectors of society or regress, as described by Smith in the Wealth of Nations....

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This editorial in the WSJ points out the dangers to the Republican party in taking the stand on immigraton along the lines suggested by Donald Trump in August 2015- deportation for all illegal immigrants, no birthright citizenship for children of illegal immigrants, and no remittances allowed for illegal immigrants to their home countries. It points out that remittances actually improve the economies of the countries south of the U.S. border in Latin America and reduce illegal immigration. There is a need for seasonal workers in farm areas where there is a severe shortage of workers even at $17 an hour. Reducing immigration is better accomplished by more guest worker programs. A likely result would be the move of farms and factories to regions with low cost labor in Latin America or other countries. For the Republican Party this type of policy would bring back the period of the 1920's, says the WSJ, when Irish and Italian immigration was opposed by the party, alienating the two ethnic groups till they were won back in the Reagan period- a sure way to lose in 2016....

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523 European banks borrowed 489 billion euros from the European Central Bank on Dec. 21, 2011, under the newly created Long Term Financing Operation of the ECB. This is designed to meet the financing needs of European banks which are shutoff from normal financing of selling unsecured bonds to private investors because of market anxiety. Much of this is for replacing other outstanding ECB loans, with analysts estimating about 190 billion euros of new liquidity being injected into the banking system. This also has the effect of reducing the borrowing rates for government bonds. In Spain the government sold 5.6 billion euros of government bonds at an auction on Dec. 20, 2011, with the interest rates dropping from 5.7% a month earlier to 1.7%. Small and midsize banks in Spain helped surging demand by buying the bonds to use as collateral for three year loans from the ECB at 1%.