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Treasury Secretary Paulson meets Germany's Economics minister and the President of the European Central Bank Mr Trichet as there are indications that the situation in Europe is not looking much better. An influential survey of purchasing managers points out that manufacturing activity shrank in the 15 country euro region in June. The situation in Europe is uneven as some countries Like Spain and Ireland are seeing sharp declines in economic activity, whereas Germany is doing much better. German unemployment dropped to 7.8% the lowest it has been since 1992. Manufacturing activity contracted in June in Fance, Italy and Austria. In the midst of this Claude Trichet has to make a decision about inflation, the ECB's target inflation is 2%, and inflation in the euro region is about 4% with higher food and energy costs. Economists expect the ECB to raise rates to 4.25% this week. This will widen the difference between USA interest rates at 2% and Euro region rates at 4.25% and also affect the USA dollar....

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The inflation rate in the eurozone showed a decline of 0.2% in December 2014, showing the first signs of deflation. This is the first sign of deflation since 2009. The unemployment rate for the eurozone remained at 11.5% in November, with the rate in Germany improving to 6.4% in Dec. from 6.5% in Nov., but unemployment reaching 13.4% in Italy. Dutch finance minister Jeroen Dijsselbloem, points to low energy prices, and core inflation data showing that excluding energy and food prices the core inflation rate increased to 0.8% in Dec. 2014 compared to 0.7% in November 2014.

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Michael Heise, chief economist of Allianz SE, says the ECB needs to assure financial markets that the deflation risks in the first half of 2015 are not all negative, as the declining price of oil adds to purchasing power in the eurozone economies. He points out that ECB needs to define price stability not as inflation of "nearly 2%" but as inflation of "below 2%," to take into account the impact of declining oil prices on inflation. His concern is about financial markets expecting strong quantitative easing program from the ECB in 2015.

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How the definition of liquidity itself has changed with liquidity not thought of in terms of assets based concept bu in terms of credit availability for both companies and households. The conversion of nonmarketable assets into marketable assets by securitization has even further eroded this idea of liquidity. With technology, internet and globalized trading the marketable securities with prices create the idea of a liquid asset and create the false belief that credit is easily available and promote risktaking. Quantitative models and computerized trading create the idea that everything is working fine when actually the quantitative models are not good at incorporating risks in the global environment (political, terrorism etc), and not good at pricing securities especially lower quality securities such as the ones that collapsed in the subprime mortgage market. With these structural changes more crises can be expected as the problems they can create such as excessive risktaking are not going to be fixed unless some new comprehensive approach is developed and there is nothing like this in sight. Financial institutions always face the pressures to ignore better judgement and reason in favor of the false security of quantitative risk models because bonuses and higher profits, underperforming earnings and stock price, market share, all these are at stake. So most finacial institutions will opt to join the bandwagon of aggressive lending and investing. The speed with which this subprime crisis reached Europe through the securities carried by European banks and otther financial institutions shows how global trading and computerized models can now affect all global areas quickly. In fact the ECB was early in its response to inject liquidity into the markets in Europe. Kaufman is not happy with the idea that the Fed should be side tracked by these developments from following its own role in ensuring price stability and controlling inflation, or that the Fed should not let market discipline so essential for free markets to operate. The solution in the meantime will involve some dose of regulation and some dose of market discipline....

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An extraordinary achievement after months of careful planning in designing the 1 trillion euro bond buying program to calm German fears, diplomacy in Germany, and persuasion with German media, for Mario Draghi of the ECB and other members of the six member Governing Board of the ECB. Risk will not be passed onto other countries and will remain largely within each central bank and each country for managing its finances- this is the ECB's approach that convinced other countries, Netherlands and Germany.

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The US economy is growing at a much faster pace than Europe or China in the last quarter of 2021- at 7% annualized growth in the fourth quarter up from 2% in the third quarter, according to Federal Reserve Bank of Atlanta. This compares to 2% in eurozone and 4% in China. Major US ports such as Los Angeles are processing 20% more container volume in 2021 than in 2019, while Rotterdam and Hamburg are almost flat compared to 2019 level. Consumption of durable goods has jumped 45% above 2018 levels in the US, only 2% in eurozone, according to ECB data. The factory gate prices in China are far outpacing the consumer prices in China, suggesting weak domestic demand and strong foreign demand. Lars Jensen, head of network at container ship company A.P. Moller-Maersk says the global supply bottlenecks were started by this surge in US demand with more ships headed for the US taking ships away from other places. The US economy will grow at 6% in 2021 and 4% in 2022, with wages growing 4% a year above the pre-pandemic trend rate, compared with 1% in eurozone, according to Bank for International Settlements. This is pushing inflation up in other countries by pushing up the value of the dollar. In Mexico hitting 7.4% and the central bank raising interest rates 0.5% point to 5.5%. In Russia inflation up to 8.4% and central bank raising interest rates by 1percentage point to 8.5%. The equipment investment in the US is up by 13% this year according to JP Morgan Chase, only 3.6% in eurozone, 0.1% in Japan. All this is creating a large gap between the US and Europe, US and China in economic growth and demand growth, and in income growth. ...

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Coordinated action by the central banks of the U.S., Canada, Switzerland, the EU, and Japan to ease liquidity problems, as Italy's borrowing rates edged up to 8%, and other EU countries faced similiar problems in November, 2011.

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Under the coordinated action by central banks in the U.S., Canada, Japan, Switzerland and the ECB, the U.S. Federal Reserve lends dollars to the ECB, getting euros in return, and the ECB in turn provides European banks with the U.S. dollars. The European banks were facing a shortage of U.S. dollars in November 2011. Money market funds in the U.S. had pulled back from investing in eurozone bonds in the third quarter of 2011, adding to the shortage of dollars. This action eases liquidity concerns.

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ECB president Mario Draghi tells a newsconference on April 14, 2015, that the bond buying program is "proceeding smoothly." He said that he does not see scarcity in the bond market. The ECB plans to continue its purchases of government bonds and other debt at a rate of 60 billion euros a month through September 2016. He said the program of very low interest rates for a very long time "is fertile terrain for financial instability imbalances," but he did not see evidence of systemically large financial imbalances at this time. The ECB approach would be to tackle the risks by using its power as a bank regulator, not by changing monetary policy, said Draghi. He was optimistic about the initial results, saying "more accomodative monetary policy is being translated into better credit conditions, which is something we have not seen before." The euro is down to $1.06 and low oil prices have helped improve economic conditions, as well as ongoing structural reforms pushed by the EU and ECB. Draghi's forecast for economic growth in the eurozone is now up from 1% to 1.5% for 2015....

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The Bank of Cyprus and the Cyprus Popular Bank (Laiki Bank), passed stress tests given by the EU in 2010 and 2011. By the end of 2010- even as other banks such as Barclays were cutting their Greece government bonds by over 50%- the two banks held 5.8 billion euros of Greece bonds, over $1 billion euros larger exposure to Greece than nine months earlier, according to European regulators. Regulatory supervision failed to alert the banks and the banks risk management failed to see the warning signs in Greece. The Laiki Bank Risk Officer went in the opposite direction actually increasing exposure to Greece, saying in a conference call in August 2010, that he had used the bank's capital position "to deepen selectively some highly profitable client relationships." What went wrong with the stress tests by the EU regulators in July 2010 of these two banks, was that the tests looked at what would happen if economic conditions deteriorated, but did not consider the possibility that government bonds could produce losses. The two banks suffered total booked losses of 4.3 billion euros in 2013 from holdings of Greece bonds. The EU stress tests of July 2010 showed the two banks having total of 572 million in surplus capital. The two banks then went on to issue dividends in 2010-2011 totalling 141 million euros. By March 2013 the Laiki Bank was "on respirator" for a few months, according to the Central Bank of Cyprus, until the 10 billion euro EU bailout in March 2013 with the closing of Laiki Bank and the sharp downsizing of Bank of Cyprus....

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Italy's new prime minister Mario Monti, was frank in his views about depending on austerity alone to meet the debt crisis, views also shared by President Sarkozy of France. Monti told an interviewer from the German newspaper Die Welt, before meeting German chancellor Merkel in Berlin: In the absence of specific help "a protest against Europe will develop in Italy, also against Germany, which is viewed as the ringleader of E.U. intolerance, and against the European Central Bank." He went on to say-"I cannot have success with my policies if the E.U.'s policies don't change." He pointed out that economic difficulties could drive Italy to "flee into the arms of populists."

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Bank of Japan chief Kuroda tells foreign media, April 11, 2013, that it will not implement monetary policy to achieve the 2% inflation target in 2 years mechanically. Other economic factors will be considered. The BOJ will be watchful and vigilant for asset bubbles. If this happens the 2% inflation target will be achieved in the medium term so that it is done in a stable way.

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A proposal by U.S president Obama to increase the minimum wage to $9.00 per hour from $7.25 to reduce poverty and inequality. This was announced in the State of the Union address of 2013.