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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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Using a new methodology India's statistics agency revises growth for 2013 to 5.1%, for 2014 fiscal year to 6.9%. Growth for 2015 is forecast at 7.4%. For the 3 months Oct-Dec. 2014 the growth in GDP was at 7.5%. Changes in methodology include computing it at market price, not at factor cost. This adds up consumer and firm spending instead of producer costs.

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Mead points out that the world with an effective U.S. leadership based on democracy and the values we cherish is needed now more than ever, after the failures of the Bush and Obama administrations to provide the kind of balanced leadership all Americans can stand behind. A world without an effective and enlightened leadership from the U.S, is one in which the world could fall apart in regional rivalry, one in which the hundreds of millions of people in the poorer parts of India, China, Russia, Brazil, and other developing countries of the world, will have less opportunity to meet their aspirations for a better life. This is because a focus on development requires less regional rivalry and because serious missteps can reverse in a few years decades of economic progress as shown in the 2008 global financial crisis. More so because we live in an increasingly interdependent global economy. It is also the kind of world where suppression of freedoms and suppression of the opposition as in China and Russia, provides a wrong kind of message, a world in which we or our children would not want to live in. Russia, India and China, are too driven by rivalry and lack the deep experience to go it alone, multipolar is more likely to end up being multipolar rivalry leading to a race to the bottom, which would be bad for all, especially for the poor in Asia and the developing world. The 2008 crisis showed what some serious economic mistakes could do to employment and incomes in the world with output dropping by a third in most places. Political missteps could lead to a slippery slope of this magnitude but more difficult to correct. Greater participation in the political process and more enlightened leadership is needed in all countries to allow many voices and greater interaction across boundaries, focussing on the dangers of such multipolar rivalries. The world of the G-7 is already moving to the G-20 where many voices are heard and serious discussion of differences takes place, but participatory is different from multipolar....

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A shift in priorities away from focussing on high growth to lower sustainable growth was announced by China's premier Wen Jiabao at the National People's Congress, China's parliament, in March 2012. This shift will reduce investment in infrastructure, power generation and exports, which will affect the level of imports of commodities from commodity producing nations in the Middle East, Australia, Canada and Brazil. It should increase imports of software, computers, entertainment, tourism and high tech goods from the U.S. and Europe. Chinese leaders have said they would make this kind of shift for some years now but growth has consistently increased more than the target rate, and domestic consumption as a percentage of the economy has actually decreased in the last decade. Now 9-10% growth rates may be a thing of the past and the target of 7.5% set this year may be actually closer to the real figure. The Chinese leaders have belatedly realized the need to make these changes now because slowing markets in Europe -which is seeing declining growth and high unemployment- and in the U.S., make the issue impossible to avoid. Wen told the Congress: "Accelerating the transformation of the pattern of economc development... is both a long term task and our most pressing task at present... Domestically it has become more urgent but also more difficult... to alleviate the problem of unbalanced, uncoordinated and unsustainable development." This is his way of saying that its unavoidable and better to start in earnest now, and at the same time recognizing the resistance to change from the stateowned companies and the other interests who have benefitted from surging growth, and now occupy a central role in the power structure. An opinion article in the People's Daily, China's official newspaper, said: "imperfect reforms are to be preferred to a crisis caused by no reforms." The World Bank's president Zoellick is respected by the Chinese leaders. He also urged them to make changes now. The recent report of the DRC, China's planning research arm, and the World Bank, also laid out the new direction away from a focus on infrastructure to domestic consumption. The fear is sudden deceleration in the absence of policy action. The impact of this will be negative for commodities over time, leading to slower growth in Australia, Brazil, and Canada. It should boost imports from Europe and the U.S. of high tech, consumer, pharmaceutical goods over time....

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The market for copper experienced a global oversupply in the last 4 years with a sharp decline in prices. The Sierra Gorda mine in Chile and the Constancia mine in Peru will add more supply of copper. Prices of iron ore dropped 50% in 2014, and copper 14%. The CEO of Glencore PLC, Ivan Glasenberg, says the problem is a huge misallocation of capital, as companies in the mining business continued to invest heavily with supplies outstripping demand.

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Since 2004 consumer spending's share of the economy in China has fallen from 40% to 35%.

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Difficulties facing China from an overheating economy, a property bubble in many cities,, and a 22.5% jump in March in the broadest measure of money supply being the latest signs of trouble. The government announcement will show the economy growth at 12% rate in the 1st quarter of 2010 vs. 8.7% in 2009. The problem is that China may have acted too aggressively when the central bank increased money supply and state-owned banks in China's centralized banking system were ordered to jack up the lending. The $586 billion stimulus sent even more money to construction and energy companies. Without effective steps and fast the Chinese economy could run into serious problems.

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American manufacturers are importing more of the parts that go into each product. According to Susan Houseman, a senior economist at the W.E. Upjohn Institute in Kalamazoo, Michigan, the imported portion for these parts is up to 25% from 17%. Even the Bureau of Economic Analysis figure of the share of GDP coming from manufacturing is overstated, says Houseman. That figure was 11.2% for 2009, but is closer to 10.5% if all the imported components are included instead of being counted as domestically made. This is down from 14.2% ten years ago, and about 30% in the 1950's. There is deep concern that the manufacturing decline has weakened America. Houseman says that one cannot separate manufacturing from innovation, and she asks if America can continue to be strong in R&D with a shrunken manufacturing base. James Jordan of the Interstate Maglev project, says Maglev- which uses special magnets to levitate and propel high-speed trains- was invented in the United States. Today equipment for that technology is manufactured and used in Japan, and innovation in high speed trains is taking place in Japan and Germany. The decline in manufacturing is shockingly large. From 1979 employment in manufacturing went down by 8.1 million to 11.6 million, with the largest drop occurring in the last ten years. With it America is losing something significant- all the knowhow and skills that go into making things. Today the airplane wings for several Boeing airliners are made in Japan and shipped here. In a not too distant past these wings would have been built here, and workers with the knowhow and skills for these critical components were part of Boeing's workforce....

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Research firm Dragonomics says real estate prices fell 4.9% in April from the prior year for nine cities in China. In 2010 prices in these nine cities went up by 21.5%, the increase in 2009 was 10%. Standard Chartered estimates China's second tier cities, such as Dalian and Tianjin, could have 20 months of housing inventory by the end of 2011. Standard Chartered says price declines of 10-20% can be expected. Government data understates the extent of the bubble and the drop in prices say analysts. Beijing real estate consultant, Soufun, confirms the slowdown in price increases, saying its data show average property prices went up by 5.1% in May over the prior year, compared to the jump in prices in 2009 and 2010. Prices of copper and steel are coming down after rapid increases. The price increases in the Chinese real estate market have put housing out of the reach of ordinary couples. In 2006 an average price of a new apartment in Beijing cost $100,000, by 2011 this had gone up to $250,000. It woud take 57 years of saving for an average person to buy the apartment at todays cost. The government's response has been to boost down payments on mortgages for second homes to 60% from 40%, prohibiting state owned enterprises outside the real estate sector from investing in real estate, and raising the reserve requirements of banks....

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Malaysia's debt to GDP ratio increased to 242% in mid-2012 from 192% in 2008 according to McKinsey. As export growth has slowed the Malaysian government is relying on credit expansion to consumers and large capital projects such as the planned subway project in Kuala Lumpur to sustain growth. Similiar credit expansion is seen in other Asian countries- Thailand, Vietnam, Singapore, Hong Kong. The period 2008 to 2013 has seen a rapid acceleration in credit expansion in these countries and especially in China. China's debt to GDP ratio increased to 183% in mid 2012 from 153% in 2008, according to McKinsey. Nomura Holding's economist Zhiwei Zhang, and other economists say it is above 200% when government data on "shadow banking" lending institutions such as trust companies is included. IMF economist Giovanni Dell'Ariccia has studied of debt expansion and credit booms since the 1970's. He and other economists at the IMF have found that credit booms- the rapid increase in credit to GDP ratios- end up in crises one third of the time, result in below par growth in another third of the time, and only in one third of the time does growth continue at the high pace. Alex Frangos talks to government officials in Kuala Lumpur who do not take seriously the high vacancy rate for office buildings in the capital of about 20% even as new office towers are being built. Bob Davis gives the example of government owned Hunan Expressway company in China which has a huge road building program and doubled its 2009 debt levels. Another state owned company in shipping China Cosco Holdings increased total debt from 85 billion yuan in 2009 to 123 billion yuan in 2012. As export growth slowed in China in 2009 credit expansion is driving growth. The normal restraints of the market are absent in China's state owned companies. Charlene Chu, senior director of Fitch Ratings Inc in Beijing, says 2012 demonstrated that the Chinese government cannot slow credit growth without risking a decline in growth. China's GDP growth in the 1st quarter of 2013 slowed to 7.7% from 7.9% in the 4th quarter of 2012. This poses a serious problem for China. China has never experienced the kinds of problems seen in Asia after the 1997 banking crisis, in the eurozone today, and in the U.S. following the financial crisis of 2008, making government officials prone to complacency about the risks....

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Zeit Online shows in this article the continued efforts of the Russian government of president Putin to discredit Chancellor Merkel, following efforts to do this for Hillary Clinton in the U.S. presidential election.  During the Ukraine crisis and the settlement accords of 2014 Germany was seen as a partner by Russia, following sanctions, and renewal of these sanctions Russia no longer sees Germany as a partner. This report shows Russian efforts to discredit chancellor Merkel and the use of RT German channel, WikiLeaks reports of Chancellor Merkel and the TTIP agreement, for the same purpose. The refugee crisis following what is happening in Syria with Russian involvement, terrorism, financial crisis aftermath from 2008, are being used  says Zeit Online to support a movement for "order" as the state ideology now put forward from the Russian government. This could be an early indicator for the 2017 German federal elections, says Zeit Online. Merkel has said that she supports continuation of western sanctions on Russia. It is hard to see what Russia has gained in improving its economy and the standard of living of the people from this type of political action. Putin was able to achieve economic goals during 2005-2010 using good Germany- Russian relations as shown in LyrArc. This was the earlier period of Putin's terms in office, with a broad group of advisors, including finance minister Kudrin, who set forward a prudent economic course for Russia including foreign investment. The world and Russia are poorer from the departure from this earlier set of policies which would have enhanced Russia's economic growth. Kudrin was fired in September 2011, and the economic course has gradually drifted away from what is most prudent for the Russian economy and growth, and for the global economy. Nationalism was part of an earlier period before 1950, that led to frequent wars and economic catastrophes. A new course has been set since then, especially by American presidents Truman and Eisenhower, and people in India, China, the developing world, in Europe and in the U.S., would see little to gain from the politics of that earlier period in world relations.  ...

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German leader Angela Merkel's own past in East Gerrmany guides her in her relationship with Russia with ther keen interest in what the then German Democratic Republic lacked, oppposition, press freedoms and independent smaller states in Europe that could manage their own affairs free of foreign pressures.

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NYT reporting on the wealth of China's elite is followed by restrictions on journalists. Visa restrictions were eased for students, tourists and business travellers, but tightenend for journalists under the Jinping administration in 2014. This NYT editorial says NYT will not succumb to pressures from the U.S. or any government, including China, to change the high standards of reporting, and will continue to meet the fair reporting needs of its readers worldwide.

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Russell Gold's interview with Shell CEO, Jack Voser. Voser describes his perspective on the global oil situation in the next three decades with a doubling of demand in 40 years, a third of which would come from renewables and 10% from nuclear, the rest from fossil fuels. Natural gas plays a large role in Shell's future strategies. Voser sees the potential of China's shale gas supplies being larger than the U.S., with clearer energy policies than the U.S. The cost of producing China's shale gas will be higher because of complex geology. He sees the potential for the reindustrializing of the U.S. midwest with the abundant shale gas supplies, bringing back jobs that were exported to other countries. Clear standards and regulations are needed to make investments. He thinks it will be very unusual if the U.S. did not grasp this opportunity. Shell's operations generate $470 billion in revenues and its capital budget for 2012 was $32 billion, providing enormous scale and requiring careful planning for long term projects in Australia, Africa, Canada and the Middle East....

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The heavy monsoon rains this year and the lack of adequate storage facilities may result in the loss of 10-15% of the wheat and rice harvest this year, according to Indian government sources. This means food prices are rising because of this loss of grain. India badly needs more and better warehouses to store grain and control food prices.