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David Reilly warns that though the U.S. Federal Reserve's stress tests of U.S. banks showed they passed- including approval for dividends and share buyback- except for Ally Financial and Citigroup, this can be deceptive. True, the Fed used 13% unemployment and sharp drop in stock market prices as conditions. The problem is with capital ratios. The Fed used a leverage ratio of 3%. It should not be forgotten that the financial crisis of 2008 was caused by excessive leverage and risk. Tested on this measure the banks fail to achieve safe levels of leverage and risk. Under the Fed's highest stress scenario Citigroup ratio was at 2.9%, Morgan Stanley's at 3.4%, Goldman Sachs and J.P. Morgan at 3.8%- what ths means is that the leverage for these banks was at 26-29 times capital. Reilly raises the question- how is this so different than the leverage used by these banks before the crisis. The stress tests in the U.S. by the U.S. Federal Reserve are lauded for being better than the European Banking Authority's stress tests, but is this a standard by which to judge them? Before the collapse of Lehman in 2008, experts including Anil Kashyap at the University of Chicago, pointed out that for every $1 of bank losses in a deleveraging cycle bank lending goes down at banks by $10, and for investment banks at $20-$30 depending on leveraging- in David Henry and Matthew Goldstein, Business Week, July 16, 2008, How Bad Will It Get on Wall Street? Lehman's leverage ratio was between 24-31 times capital before the crisis. Worse, by saying banks are now safe compared to the situation before the crisis, is the Fed giving the green light to banks for some of the same leveraging behaviour that ocurred before the crisis?...

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Bob Woodward's recent book "The Price of Politics," gives an inside account of how the Obama White House handled the U.S. deficit crisis. In an intervew on Bloomberg television channel, Woodward told Charlie Rose President Obama showed a lack of leadership in using his presidential authority to pull together various points of view for an agreement. Obama failed to provide presidential leadership in achieving the needed compromise, as past presidents had done.

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The Chevy Volt GM's plug in electric car comes out in 2010. Toyota plans to bring its plug in electric car in late 2009. A company in China, BYD, has already come out with an electric car, the F3DM, priced at 150,000 yuan or $22,000. By contrast the Chevy Volt is expected to be priced at $40,000 when it comes out in 2010. Essentially this gives the market leadership to BYD, because it would have 2 years of experience with its cars on the road, and $40,000 is just not a commercially viable price if a competitor can sell it for half the price. So how does BYD do it? Wang Chuanfu is founder and chairman of BYD Co. a battery and car maker. BYD has built up low cost, high quality and highly motivated research and development capabilities. Wang put together about 10,000 technicians and engineers, many fresh out of colleges and technical schools in China. As it learns the efficiencies of manufacturing and design it is able to bring this to bear on the H3DM improvement, for introduction of other new electric car models. And this technical capacity comes at a much lower cost in China compared to western countries. Wang's focus on this area making it possible to price at $22,000. The CEO of Mid American an Iowa based energy producer with majority stake ownership of Warren Buffett, was attracted to BYD for this very reason, and bought a 10% stake in BYD for $230 million. Wang believes there is a more level playing field in electric cars because of the simplicity of their design and fewer parts, making for a faster move up the learning curve. Electric cars have just 2 motors (45 parts each) and 2 gearboxes (60 parts each), a total of 210 parts excluding nuts and bolts. BYD's gasoline car the F6 has 1400 powertrain parts, 840 parts for the V6 and for transmission 560 parts. Says Wang, this puts all of us on the same starting line. The F3DM is the first real electric car being able to go for 60 miles exclusively on electricity on a full charge. A car that can go 180 miles on one full charge called the BYD e6 is planned for 2009. BYD uses iron-phosphate technology which is safer because of stable chemicals and less chance of fire from overheating. This is a key criteria for this lithium ion battery technology for cars. The Chevy Volt battery being developed by A123 company at MIT uses a similiar technology. BYD started with lithium ion battery development years ago. Its founder Mr Wang was fascinated by batteries when he studied metallurgical physics and chemistry in the mid 1980's for his Masters degree. He found a research position at the General Research Institute of Nonferrous Metals in Beijing, then decided to form his own company BYD in 1995, to develop lithium ion batteries with about 20 engineers. Experience was gained selling batteries to Samsung, Nokia and Motorola. In 2002 the company went public on the Hong Kong stock exchange. Wang was attracted to the idea of electric cars at this early stage even though he did not know how to drive. In 1998, says Wang, he had his engineers start upscaling development from cellphone battery technology to electric car battery technology. At the same time to pursue his vision for the development of electric cars Wang made the decision to learn car development by making and selling gasoline cars. The first car was a small sedan called the F3 brought out in 2005. By the last quarter of 2008 the F3 was one of China's best selling automobiles. Demand for BYD's F3 and F10 models is growing even as car sales are dropping in China, helping BYD to gain in car sales relative to Cherry Automobile and Geely Holding, two of the largest competitors. ...

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The U.S. Federal Reserve chairman Yellen tells a Boston Fed conference on economic opportunity and inequality: "The extent and continuing increase in inequality in the U.S. greatly concern me. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them the high value Americans have traditionally placed on equality of opportunity." Yellen pointed out that the high inequality impedes economoic mobility which impairs the recovery. Income disparities of this type reduce the country's economic potential, said Yellen. Recent housing gains have helped restore losses of housing wealth with more gains at the bottom. Yellen emphasized the need to invest in education and opportunities for business ownership as ways to improve economic mobility. Low inflation or deflationary trends with lower oil and food prices, give the Fed more flexibility to reduce the numbers of the long term unemployed or part time employed for lack of full time work, a critical goal for the Yellen Fed....

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Total household debt, including mortgages and credit cards, as a percentage of disposable income, has declined from 130% in 2007 to 116% in 2010. The Federal Reserve reported this data recently. Much of the reduction in debt was done through defaulting or walking away from mortgage loans, and some of it by reducing expenses. Commercial banks wrote off $118 billion in mortgage, credit card and other consumer debt in 2010, according to the Fed data. This amounts to half of the total $209 billion in debt reduction for household debt, which includes new mortgages and credit card debt. Economists say the level of household debt is still high because household debt at a level lower than 100% of disposable income is where it should be. Many consumers are still in a weak condition because of the weak job market, which has resulted in their using up some of their retirement savings till a job at a lower pay is found. Job cuts at the state and local level are still looming as state governors reduce their deficits. Total U.S. nonfinancial debt went up by 4.8% to $36.3 trillion, with a 20% increase in federal debt. Higher gasoline and food prices also act as a tax on households in 2011....

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With inflation cooling to 3.3% in May report the US Fed sees only one rate cut for 2024. The Labor Department report on inflation consumer price index showed it was essentially flat from last month at 3.3% over the month prior year.

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BMW's first mass production electric car the i3 will go on sale inthe U.S. in the second quarter of 2014, priced at $41,350. It is a city car with a range of 100 miles from one charge. BMW will launch a i8 in 2014. The i8 is a super sports car with high fuel economy. A electric motor drives the front wheels and a 3 cylinder gasoline engine drives rear wheels. BMW's CEO Reithofer has increased spending on R&D so that it can meet the 30% of automobiles that have to be hybrids or electric vehicles by 2025 for BMW to meet higher European auto emissions standards. R&D spending was up 17% in 2012 to 9.2 billion euros, and capital spending up 42%.

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This editorial in the Economist says Britain's economic recovery will not be complete until interest rates are well above zero and productivity growth is established. Without productivity growth and growth in wages, both lacking in the economic recovery since 2009, tax revenues will not be enough to reduce the deficit, requiring more spending cuts. That means the Bank of England will not raise interest rates, keeping a situation of no rate changes prevailing since March 2009 when the central bank cut rates by 0.5%. In the current situation the Bank of England is not expected to raise rates till 2016, only after the U.S. Federal Reserve increases rates to avoid appreciation in the pound and further deflationary pressure, according to Goldman Sachs. With inflation currently at zero, following the drop in oil prices, and 10% appreciation in the pound since mid 2013 making imports cheaper, there is little pressure to increase interest rates. In 2011 inflation with rising food and energy prices reached 5.2% , but the Bank of England did not raise rates because of the eurozone economic crisis affecting growth. Only since 2013 has economic growth picked up with 1.2 million jobs created since the beginning of 2013, bringing unemployment down from a high of 8.5% in 2011 to 5.6% in May 2015. Throughout the recovery productivity growth is falling behind- 2014 productivity measured by output per hour worked was 1.3% lower than in 2011, and 14% below the pre-crisis trend, according to the Economist....

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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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Arvind Subramanium, outgoing Chief Economic Adviser to the prime minister in an interview with the Hindu newspaper, shares some of the knowledge he gained from failures and successes. The key lesson he gained is that it is important to have independent advisers in government who can speak their mind. Finance minister Jaitley has embraced this point, that such an adviser is not just one more part in the technocratic machinery of government. The success in getting GST he says shows that cooperative federalism is needed going forward as a kind of technology for many changes, including agriculture, DBT.  Subramanium calls the Economic Survey a success with 350,000 unique visitors. He likes the independence and distance of the CEA job to propagate the big ideas combined with closeness to decisionmakers. He counts as a failure not being able to create an office of CEA to the states, a request from 7 chief ministers and state finance ministers. Subramanium sees the need for more people in government with specific expertise in different areas as opposed to generalists as the work of government is becoming much more sophisticated. There is much need for talent and the flow of lateral talent into government.  Responding to economic issues such as the impact of oil prices on the economy Subramanium sees CAD at 2%, inflation at 4.5% much better compared to 2013 levels of double digits and not in unhealthy territory and very manageable. He sees risks in the impact of a combination of oil prices, dollar appreciation, and currency trade wars that are happening. On Iranian oil imports and strict U.S. sanctions on importers Subramanium sees the cost of not complying as stiff once you are in the dollar trading system. On demonetisation he sees there are short term costs and potential long term gains that requires an assessment every 2-3 years provisionally, what happened to tax and formalization, and the costs. Including costs in inconvenience and hardship for informal cash intensive sectors noted in the Economic Survey. For GST he says the revenue growth rate is 16-17% in aggregate for next year, growing 12% in the first year after a difficult implementation. The poorer states have seen an expansion of tax base and revenue performance is unprecedented.    ...

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There are about 2.4 million workers on American farms. 44% of them are undocumented workers says the Department of Labor.  They do jobs such as picking the fruits and vegetables that are part of the food supply. Deporting them all will increase prices of farm products as harvesting fruits and vegetables will be difficult. During the Eisenhower administration in 1953 deportation plan large growers in California and New Mexico used seasonal agricultural labor from Mexico, and the nation's food supply of vegetables and fruits depended on these workers. These companies lobbied hard for ways to keep these workers. On the other side were smaller farm owners who used fewer migrant workers. The complication this time 2024 is that unlike in 1953 under Eisenhower mass deportation when the border was otherwise peaceful, in 2024 the US has faced a decade unprecedented in its history of flows of fentanyl and drugs across the southern border. The deportation is about migrants who are not easily integrated culturally into the US, about the dangers of illegal entry in such large numbers that it disturbs the quiet life of the small towns and cities in the US. The US needs immigrants but in a planned way with legal entry, and no flows of drugs across the Border, that protects the American people and serves America's interests.    ...

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Domestic tourist trips up 19% over 2019 in China as China opens up to tourism are leading to only a 1% increase in total tourist spending, as tourists are just plain thrifty. Food inflation that is 10-15% in the US is about a catastrophic 40% in Europe with creeping higher margins of grocery stores. Compare that with China where inflation is less than 1%. WSJ looks at Zibo a city in China that was like hundreds of smaller industrial cities in China until a government publicity campaign got about 4.7 million people to visit it for its barbecue pancakes. The prices were relatively inexpensive with two people eating for $20. Yet this type of tourism is not boosting the Chinese economy when exports are slowing and the construction sector is in poor shape financially. 

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India stands true to the principles of Mohandas Gandhi and joins Pope Francis in strongly condemning the killing of innocent civilians in the Russian invasion of Ukraine, as Gandhi would have done in his own way when he even paused the nonviolent struggle against the British after the burning of police stations in British India. Of no less significance is the danger of food insecurity caused by the war in Asia, Africa and Latin America which India is meeting. India is America's true partner in the free world in a way that even Germany, France, even Britain fail to be now that we know Merkel's policy "errors" and Macron's lofty ambitions for Europe, emboldened Russia in its invasion of Ukraine. American and German business integration of the American and German economies with China may also have emboldened Russia and China in their perceptions of world affairs that directly conflict with China's Buddhist history, Gandhi's view of the world, and India as the land of the Buddha.  Mr. Biden will talk with Modi about the invasion of Ukraine , the Indo-Pacific, and the building of strong India-US partnership. A major issue that has not been discussed at this level is the challenge India is facing and meeting of food security after the war in Ukraine. Pakistan, Sri Lanka and many developing countries are feeling the effects of the war with soaring food prices denying access to basic necessities in these countries. This extends to countries from Asia to Africa and Latin America affecting hundreds of millions of people.  India is providing food assistance following its effort to share vaccines in a remarkable effort that has not received the world's attention. Vaccination for over a billion people in India has taken place in one of the significant achievements during the pandemic. This was combined with food security assistance to hundreds of millions of people in India in India's population of 1.2 billion people. India is now in a position to meet some of the world's food needs with its own efforts in agricultural production. In this way the role played by the US since World War II for peace and security is being met by India as a significant partner in the free world, and in a way this is returning the kind of help the US offered India during the period of famine in the sixties. US president Biden understands this as he will discuss "mitigating the destabilising impact on global food supply and commodity markets" of the war in Ukraine. These are the hidden costs of the war that are not less painful than the gory war scenes unfolding today in the Russian invasion of Ukraine, and because they are about food they are of no less importance. ...

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Shiller says that his CAPE ratio for the U.S. stands at above 25 in 2014, from 23 in 2013, above the 20th century average of 15.21. He looks at possible reasons for the CAPE remaining above 20 for long period of about 20 years, except when it dropped to 13 following the 2008 financial crisis. CAPE is similiar to the price earnings ratio except it uses the average of the last 10 years earnings. Reasons he gives are low interest rates, high bond prices, Fed policy, and the lack of alternative investments in a low interest rate environment that puts more money into the stock market in the U.S.

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Saudi Arabia needs current oil price of $60 a barrel to move up to $80 a barrel to balance its national budget. To do this OPEC needs to coordinate its oil production cuts with a group of 10 countries led by Russia that includes Mexico. These countries include countries in the former Soviet Union.  In December cuts of 1.2 million barrels a day were coordinated between the 2 groups to push up oil prices. Now the OPEC cartel plans regular meetings with the Russian led group to push up oil prices. Under a draft document an alliance between the 2 groups would last 3 years and include regular meetings. Earlier Prince Salman led Saudi government proposed replacing OPEC with a new group combining Russia and Saudi Arabia and the other countries in OPEC, yet giving most of the decision making power to Russia and Saudis. This was rejected by Russia and was received poorly by Iraq, Iran  Nigeria, Angola, Algeria. The Iraqis reminded Saudis that OPEC was started in Baghdad. ...

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With some aspects of Marie Le Pen's programme possibly violating the French Constitution and some parts of the programme leading to France being forced to leave the European Union, what was not looked at carefully in the first round vote is now happening for the second round. The Le Pen draft law on "immigration, identity and citizenship," is seen by multiple analyses cited by The Guradian, as violating the principles of equality enshrined in the French Constitution. Constitutional experts say this would also violate European law and lead to a progressive or indirect exit from the European Union. Le Pen's proposal to lower the retirement age to 60 was coming under scathing scrutiny, with Jean Tirole, the 2014 Nobel prize winner in Economics saying it would cost 68 billion euros and "permanently impoverish the country." Countries such as Brazil that lowered the retirement age in this manner have found that it seriously affects public finances, leading to the deep economic crisis in Brazil following the commodity price collapse a few years ago. Macron has moved in the opposite direction to raise the retirement age gradually and now with a proposed national consensus, at the cost of losing some support, simply to shore up public finances. So that needed investments in infrastructure and climate change can be made. For this reason it may become evident to undecided voters that Le Pen's proposals have some serious flaws if implemented, weakening the French economy and yet not tackling the deeper problems of younger people. These problems The Guardian says in a separate report are the precarious and low pay jobs, asset based inequality, and rural urban regional differences developing as a result of the offshoring of manufacturing to China, and are common to Britain, France, Germany, and the US. These problems are beginning to be addressed after the lessons learned from the pandemic by western nations.   ...

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Bernie Sanders is reelected Senator from Vermont, as one of the oldest and most senior members of the US Congress in history. He will be 89 at the end of his fourth term in the US Senate. At 83 years he is the most resilient and active Senator in the US. Bernie Sanders support was key for president Biden's election in 2020. “It should come as no great surprise that a Democratic party which has abandoned working-class people would find that the working class has abandoned them,” Sanders said. “First, it was the white working class, and now it is Latino and Black workers as well. While the Democratic leadership defends the status quo, the American people are angry and want change. And they’re right. “Today, while the very rich are doing phenomenally well, 60% of Americans live paycheck to paycheck and we have more income and wealth inequality than ever before. Unbelievably, real, inflation-accounted-for weekly wages for the average American worker are actually lower now than they were 50 years ago. “Today, despite an explosion in technology and worker productivity, many young people will have a worse standard of living than their parents. And many of them worry that Artificial Intelligence and robotics will make a bad situation even worse. “Today, despite spending far more per capita than other countries, we remain the only wealthy nation not to guarantee healthcare to all as a human right and we pay, by far, the highest prices in the world for prescription drugs. We, alone among major countries, cannot even guarantee paid family and medical leave.” ...

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Voters took note of the quality of each candidate, and Democrats were scrappier  in the fight this time around to give a tight result. Voters did not know much of what Mr. Biden had done to cap healthcare costs in midterm elections for 36 governors races and for control of the US Congress. The pocket book issues mattered to voters with sharp increases in the price of oil and groceries, but less so than made out earlier and voters may have grasped the bigger picture.

The quality of candidates mattered and on the Republican side the influence of Mr. Trump in the primaries led to choosing weaker candidates because of their loyalty to Mr. Trump. In the end with a large turnout of voters on both sides the election was much tighter than expected. Democrats in each state did better using their own initiative and effort this time and were much scrappier in the fight for the Governors races and the Senate.

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Dow's 679 point drop on Thursday October 9, 2008, investors lose $8.4 trillion of wealth, which is sure to impact consumption spending coming after a steep drop in house prices and loss of trillions in home values. This will affect countries dependent on exports like emerging markets from Russia, China, Brazil and India to other countries around the world as the US imports less energy, less soyabeans, less from the manufacturing locations in China. This means cutting growth in Brazil, India and China as well as in the US and Europe.

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Prices of natural gas in the US have risen 93% since August 2007 and as global demand continues prices are expected to fuel inflation in the US. Producer prices were up 1.1% in March according to Labor Department and natural gas prices contributed to this increase. Natural gas heats half of uS homes, supplies 20% of USA electricity and is used to make products from fertilizer to plastic bags. And demand from the US power sector is growing at 10% a year as natural gas is clean burning to produce electricity at power plants and preferrable to caol burning plants from environmental standpoint. With environmetal regulation and costs natural ga ma be preferred by plants for power generation. A revolution has ocurred in the way natural gas is cooled into liquid LNG and transported in LNG tankers so that places like Nigeria and Quatar can now ship to Japan and Europe. And LNG contracts are now written in less rigid terms so that supplies are not fixed over 10 year periods like before and can be diverted by suppliers to other markets where prices have risen so that when a nuclear power plant shuts down in Japan LNG supply can be diverted to Japan from other countries because of vastly higher prices in Japan. This also happens elsewhere last year a drought in Spain cut hydroelectric power and Spain turned to Algeria and Egypt which had already diverted supplies to Japan which paid prices twice as high as Spain, so Spain secured supplies from Trinidad a US supplier, which reduced supplies to the US by 31% over 2006. So this shifting global supply chain means shortages and prices in one place can reverberate all the way to the USA. Because of these and other reasons US prices are expected to go much higher by estimates from Barclays and Deutsche Bank....

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Indian Foreign Minister Jaishankar says- “The cessation of firing was agreed between the military commanders of both sides through direct contact.” In fact that is what India asked the US - that Pakistan initiate by its general calling the Indian general asking for the war to stop only then would India agree to stop the war, as India had clearly informed Pakistan that it was not targeting Pakistan military only selected terrorist bases inside Pakistan and Pakistan occupied Kashmir. Jaishankar was responding in an interview with a European news reporter about his question on whether the nuclear aspect was kept in mind. It was an interview with German newspaper Frankfurter Allgemeine Zeitung.  Jaishankar made this clear to Dutch Broadcaster NOS- “We made one thing very clear to everybody who spoke to us, not just the US but to everybody, saying if the Pakistanis want to stop fighting, they need to tell us. We need to hear it from them. Their General has to call up our General and say this. And that is what happened.” "We have sent a clear signal to the terrorists that there is a price to be paid for carrying out such attacks, as they did on us in Kashmir in April. The firing was then started by the Pakistani military. We fired back in self-defense and once the Pakistanis understood that they were taking a harmful course, we were able to stop firing. This situation has not changed for two weeks, that is the status.”   ...

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Gome's share price fell 21% on March 27, 2012. The company is facing strong competition from online sellers. Its profits declined by 6% in 2011. China is seeing an upsurge for online retailers such as 360Buy.com and Taobao. Gome's internal estimates are for internet sales of home appliances to be 1 in 3 by 2016, up from 1 in 10 in 2010. Gome is in a similiar position as Best Buy in the U.S. which competes with Amazon.com and other online sellers. To compete Gome is promoting its own online shopping operations.

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Experts at the East-West Center in Honolulu, say China will add about 55 million barrels to its strategic reserves in 2012, which is another factor that will keep oil prices high in 2012. A number of new storage locations are coming on stream to store the additional reserves. China imported 5.57 millon barrels a day in March 2012, an increase of 8.7% from the prior year month. Oil imports for the 1st quarter of 2012 increased by 11% over the prior year quarter, according to China's General Administration of Customs. This is a much faster pace than imports in 2011, which increased by 6%. China is building its strategic reserves to reach a goal of 90 days supply similiar to the U.S. strategic reserves. Lu Tienan, director of China's National Energy Administration, said at a conference in the first week of April that current total oil stocks, including strategic and commercial are enough for 40 days. It is doing this in the face of higher oil prices, because of the threat of sanctions against Iran's nuclear program could lead to a cutoff of Iranian supplies. China's oil imports from Iran were 11% of total imports in 2011, making this an urgent priority for China. Estimates of the East-West Center are for crude oil imports at an average of 5.77 million barrels a day in 2012, an increase of 13% over 2011. International Energy Agency estimates are for China's total oil demand for 2012 to be 9.9 million barrels a day in 2012, an increase of 6% over 2011....