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Sweden alone has $23.2 billion of loan exposurte for Latvia. Loan exposure for European banks is $42.2 billion for Lithuania, $39.5 billion for Latvia, $35.2 billion for Estonia, and $38.7 billion for Bulgaria. The currencies of the three Baltic republics are pegged to the euro and there value has remained unchanged even as the currencies of Russia, Hungary, Ukraine and the UK have seen substantial devaluations during this crisis. Experts say a devaluation should be undertaken to reduce the pain of wage and benefit cuts for public serive employees. Individuals, homeowners and companies hold over $40 billion of loans that they owe foreign banks, making paymetn more difficult and leading to more loan defaults. Latvia has seen overnight interest rates rise to about 20% and expects GDP to fall 18% this year. Swedish banks say they are prepared for a devaluation and high laon default rates, and the Swedish government has committed to help the Baltic countries in this crisis. See link.

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Kozo Yamamoto joined the Finance Ministry in 1971, and is serving his sixth term as member of Japan's parliament. Since 2011 Yamamoto has convinced Abe, a colleague in parliament, about the need for reflationist policies now called Abenomics. This helped Abe make a comeback win for the prime minister's position for a second time. Yamamoto led the study group that convinced Abe of the need to delay the second increase in the consumption tax to 2017, and a 3 trillion yen stimulus package to encourage household spending, following the economy's fallback into a recession in Nov. 2014. He says it was important to not add to the headwinds the economy is facing. Yamamoto does not fall into the conservative mold of people from the Finance Ministry, as he takes tango lessons, is interested in fine pottery, and in Italian cooking. He has called bureaucrats in the ministry and central bankers "feckless" and "defiant," after years of questioning them in parliament and demanding reflationist policies. With the snap election in December 2014 the Abe led LDP is taking on the conservative Finance Ministry officials, who have insisted on sticking with the old timetable for the tax increase, regardless of the headwinds and slowing exports....

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Term Asset Backed Loan Facility of $1 trillion is aimed at bringing new life to the market for asset backed securities that effectively subsidizes loans to consumers and businesses to buy cars, pay for tution, buy farm equipment or use credit cards. Through the program an investment fund can put down $5 to $14 for every $100 it plans to spend and borrow the remaining $95 to $86 cheaply from the Fed. The investment fund agrees to buy highly rated securities issued by lenders that the Fed deems eligible collateral for the loans. About $10 billion in such loans could be made available to auto lenders, Ford Motor Credit and World Omni Financial Corporation. Modifications to the TALF program are being proposed by the banks, but are being reviewed for risk by the Fed and Treasury.

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The increasing likelihood that Greece will exit the eurozone. This happens as the New Democracy party fails to form a coalition and the other parties are offered a chance to form a coalition. The other opposition parties gained far more votes than New Democracy and Pasok in the elections and some parties favor Greece exiting the eurozone. New elections will be held in June if no government is formed. The current government of Lucas Papademos says it needs an extra year to complete the privatizations, public sector layoffs and improvements in tax collection, giving Greece till 2015 to get the job done. As a senior advisor to Papademos, George Pagoulatos, put it: "There is a sense that Greece has passed its pain threshold... Greece needs some oxygen to breathe." Both the Ifo Institute's Sinn and John Taylor see the exit from the eurozone as the best option for Greece, as interest rates on Greek debt have been reduced and Greek banks recapitalized with the March 2012 bailout. John Taylor, WSJ, Feb. 22, 2012, A Better Grecian Bailout/ WSJ, Feb. 17, 2012, Interview: Ifo's Sinn: In Greece's Interest to Leave the Eurozone.This may already be the preparation the IMF, ECB, EU, and the Greece government has laid out as an option if the voters in Greece overwhelmingly rejected further austerity. This now appears to have happened and far more quickly than politicians in Athens, Brussels and Berlin had anticipated....

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A former Interior Secretary Bruce Babbitt says the Interior Department needs to take up authority it has for contract approval on use of water by individual entities in the states of California and Arizona. The department can look at how efficiently water is being use to give approval. He suggests this approach as the states of California and Arizona are nowhere near agreement on use of water from the Colorado river. Babbitt says there is risk of deadpool where the water in Lake Mead drops to levels that make water to stop running from the lake downstream to Arizona and California.

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China's prime minister Li Keqiang leads the task force tackling the coronavirus outbreak. He visits the city of Wuhan to calm anxiety and frustration about the outbreak. The lunar new year holiday in China which starts now is being extended to Feb 2.  Shanghai and Beijing city officials are advising returning workers not to return till February 9. The rural areas are a weak part of the link in the effort to stop the outbreak. Millions of workers return to cities after visiting homes in rural areas during this holiday period.

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New York City faces a $2 billion deficit in current fiscal year in 2026 and $10 billion the following year. This means there is less funding for new Mayor Mamdani's programs for groceries/transport for New Yorkers. Mamdani was elected by people in the hope that he could find ways for struggling New Yorkers to handle the cost of living crisis in 2026. New programs Mamdani promised were free bus service with costs annually (cost 0.8 billion), new rent stabilized units (annual cost $7 billion),  universal child care (annual cost $ 6 billion). A state corporate tax hike could generate $5 billion and a millionaires tax $4 billion, not enough for $13.8 billion cost for these services. The other problem is the way the city has handled its finances- this report shows declining projections for expenditures under former mayor Adams for public assistance, rental assistance, and MTA subsidies items which one would expect to go up in a large city the size of New York with new immigrants.The report says the shortfalls were met by using funds meant for the next year. Already Mamdani is not able to expand the state voucher program for residents facing eviction because of these budget constraints. This is the pattern in New York of making new promises not funded on the revenue side. Mamdani promised smaller class sizes but did not show where the funding for extra teachers would come from. For New Yorkers this adds a bit of realism to the idea that a new Mayor and new promises is the answer to its problems. Only about two thirds of its budget comes from its revenues the rest from federal and state funding which means an overall solution firing on all fronts, with federal and local cooperation, private investment, good governance, foreign investment, is needed to tackle the problems of major cities like New York. ...

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BBC's look at Andy Burnham, whom it calls "King of the North" having won 60% of the vote as Mayor of Greater Manchester for three successive terms. A brief look at Andy Burnham's life. His father was a BT enginee and his mother a GP receptionist both strong Labour party supporters. He studied for a Masters degree in English at Cambridge. BBC says he was inspired to join Labour at age 14 years after seeing a documentary "Boys from the Blackstuff,"' about life in the city of Liverpool for the disadvantaged. He is a soccer player and Everton soccer team fan, who played for Lancashire schoolboys cricket team. He starts out as ajournalist working for trade magazines, then as researcher for the MP for Duwich, later joining the Blair movement that returned Labour to power. Under Blair he was junior minister, then MP for Leigh in the Manchester area. He moved to Cabinet Minister under Gordon Brown as chief secretary to the Treasury and Health Secretary. With Conservatives in power he was Shadow Home Secretary under Jeremy Corbyn in the Opposition. He ran against Jeremy Corbyn and Ed Milliband for the leadership of the Labour Party before being elected as Mayor of Greater Manchester three times with 60% of the vote. As Mayor he put the bus and transport system back under government control and built the Bee Network, which is one of his success stories in Manchester. He is seen as the only Labour leader who enjoys confidence of the British public from the way he ran the large local government of Manchester. With UK Reform winning local elections he is seen as the leader who can bring confidence back to Labour, and to Britain as it navigates the post Brexit environment and strives for renewal of Britain, its economy and role in Europe. ...

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Kenneth Rogoff of Harvard University, expert on debt crises, and author of "This Time is Different," says China is one of the best examples of the idea that this time is different, with the idea created that somehow China was impervious to the massive build up of debt. The debt is now over 250% of GDP, and this was possible for so long because of the high savings rate of 30% of disposable income and the millions of young migrants moving to cities to work in manufacturing. The growth of shadow banking, opaqueness in decisionmaking, unreliable data, use of local government financing vehicles, the bubble in housing with a large portion of loans tied to the real estate market, all combine to create serious problems that will take a long time to sort out. Rogoff says the crisis in Tianjin with the deadly explosions in the port area, and the government's inability to provide answers to questions from a alarmed public, only added to the uncertainty and loss of credibility. Rogoff says he hopes the trillions of dollars in reserves will provide China with the tools adequate to tackle the debt problems before they spread to other countries....

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The new oil law allowing foreign oil companies to compete with Pemex passes the Senate in Mexico and now goes to the lower house. The legislation removes the 4 oil worker union's representatives from the 15 person Board of Pemex. The oil law now leaves only a 10 member board- five appointed by the government and five independent members approved by the Senate. Because past opening of investment by the private sector in state owned railways and telecom sectors has led to wealth passing into the hands of a few business owners and worsening competitiveness, there is concern in Mexico about how this law will be implemented so that it benefits Mexico and Mexicans through foreign investment in the oil industry. Leftist parties are pushing a bill in the lower house to allow a referendum on the oil law by 2015 if 1.6 million signatures are collected. Oil experts point to foreign investment in the Mexican oil industry as further enhancing the prospects of North American oil production in comparison to the position of Middle East oil producers, because of Mexico's large shale oil and gas reserves and the prospects for new exploration in deep waters. ...

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After increasing the price of subsidized diesel, the Indian government lays out a plan to cut the deficit over five years. The plan sets a goal for the deficit of 5.3% for fiscal year ending March 2013 to come down to 3% by 2017. Earlier India's central bank, the Reserve Bank of India (RBI), had said the government needed to take action on the deficit before it reduced interest rates. The RBI faces a difficult task in reducing rates to stimulate the slowing economy because inflation was 7.8% in Sept. 2012. At the same time the sharp decline in growth is a cause for serious concern- the most recent RBI forecast for GDP growth made in July for the current fiscal year through March 2013 is 6.5%. This may not be achieved as other economists have lowered the estimate to as low as 5% because of slow government action in economic reforms, high interest rates, and the uncertain global economc outlook. The last action by the RBI to lower interest rates was a drop of half a percentage point in April 2012. Much of the momentum for the Indian economy was lost in the first half of 2012 with the governments vacillating steps for opening the retail and other sectors to foreign investment. Only in October 2012 has prime minister Manmohan Singh set a clear direction by dropping coalition partners opposed to reforms and announcing new policies for foreign investment....

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Argentina's president Christina Kirchner's popularity increases from 31% in September 2014 to 43% in June 2015 during her last year in office, according to polling firm Management and Fit.

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Feldstein is back after his proposal that the government step in with low cost loans to families thatwould help homeowners reduce what they owed the bank by 20%, for those homeowners who are close to negative equity but not there yet. This is needed to prevent the next big wave of defaults on loans, from homeowners who see that walking away from their loans is a rational solution once they reach the point of negative equity. Feldstein hammers away at some critical points that point out that reducing rates risks more than it accomplishes. Food prices globally do not benefit from lower rates, as governments may have to raise interest rates to cool inflation in their economies. Rising food prices threatens the livelihoods of poor and working classes in the global economy, especially in developing countries of Asia and Africa. It also does little to stimulate the economy in the USA and actually helps increase inflation for commodities like oil and food products. So why is the Fed lowering rates even though the costs are more significant than the benefits. Lowering rates would be counterintuiive in this situation as Feldstein points out. Bernanke's response would be that its a temporary crisis response, lower interest rates helps financial firms restructure their debt and helps them restore health to their balance sheets in the fragile financial markets, where the financial architecture itself is being questioned. And the immediate crisis was in the financial markets, whereas some other solutions could be found for the damage this caused to the overall world economy in terms of inflation. Feldstein quotes estimates of inlation at 4% in the last 12 months and of 4.8% this year. The inflation rate in China is estimated much higher at about 8.5% and has become the focus of government efforts including relaxing the exchange rate, as the rise in prices especially of food affects the large working poor in China. Another aspect of lower interest rates is that lower rates surely would do little when there is such a large inventory of unsold homes. Significant also is the fact that lowering rates for fed funds by 3% from this time last year, has done little to lower mortgage interest rates which have come down only by 0.5%. So it does not give much relief to homeowners either. So is lowering rates a medicine that comes with a lot of side effects that you adminster only because the patient is in a critical condition, as the financial and credit markets appeared to Bernanke and Paulson that weekend only a few weeks ago? Probably so,which takes one back to Feldstein's main point. That main point is that the only way to get to solutions that strike at the core of this crisis is to help homeowners avoid default on their home mortgage loans, by reducing the loan amount by something like 20%, through government loans which can later be recouped to some extent. It cautions the Fed to use the medicine of lower rates sparingly, and urges the market participants and the public that insists that there be no "bailouts" to come to their senses, and accept that their will be tolerable losses for all if there are not to be intolerable losses for all....

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The story of a company and its founder in Seattle who realized that $40,000 a year is not much to make a decent living in Seattle- that people had to work 2 jobs. In the process hurting the productivity at the company, with employees putting in less of the kind of energy and motivated work that helps companies grow. The founder decides to cut back on his own expenses and extravagant lifestyle to make sure his employees are paid a decent wage. He did the math and decided on $70,000 Five years later sales of the company have doubled. It is a payments company and the payments processed at Gravity doubled from $3.8 billion a year to $10.2 billion. The number employees have doubled. For employee productivity it mattered that they were not doing 2 jobs and worrying about credit card debt. Now 70% of employees have paid off debt. The amount of money they put into pension funds has doubled. And instead of 1% about 10% own their own homes. This suggests the old culture was bad for the economy as well as employees. More housing demand, more homes built, more cars sold, more money for pension funds to manage, all translate into a better performing economy and economic growth. Simply stated the old culture has put an artificial ceiling on economic growth and worse set a low bar fro productivity in companies. Healthier employees who could spend the time doing second jobs doing exercize instead and staying fit would also bring down the money spent on healthcare.  Ultimately it us about good common sense, and honest thinking about what works and does not work. The old culture simply fails good common sense. ...

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Anna Botin, new CEO of Banco Santander says she is acting on the three goals she set for the bank- to increase the number of independent directors on the board, bring in new management, and strengthen its capital cushion. Santander moved to increase its capital cushion to 10% under Basel III rules by selling 1.2 billion shares at 6.18 euros each to raise $8.8 billion in Jan. 2015.

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Leslie Gelb says US should focus on its strengths, on the areas that it can build on to come up with something of enduring value and not focus all one's energies on situations and troublespots that siphon off a lot of American energies. This is a good idea and should be something that policymakers at State and the National Security Council and advisers to the President could keep in mind. There is alot to be said about the Truman example of the Marshall Plan in building western Europe after the war. At the same time its not as clear cutthat troublespots and the difficult work can be avoided. Was the Berlin airlift a troublespot? And Truman had little time to respond to the invasion of South Korea from the north, acrisis he would have chosen to avoid, if he had the choice. Instead he was drawn into along drawn out war on the Korean peninsula. Still the idea that you want to save your energies and not dissipate them in conflicts which can't clearly be won is a useful one. The Korean war was fought on conventional terms so the US could point to success years later in South Korea. But for conflicts fought in the jungles of Vietnam or in the remote mountainous terrain of Afghanistan, limited objectives and willingness to consider history, customs, and local tribal cultures is very constructive. ...

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What are the systemic effects of one of the automakers going out of business? It affects the whole supplier base. This is the case in the event of a liquidation of assets, closing Delphi and so on. This was mentioned by Wagoner as the alternative and not prepackaged bankruptcy with DIP set aside loan for warranty financing which some experts are advocating in combination with a government loan with strings attached including a change in management. Some of the strings are covered in a New York Times editorial reflecting public opinion on the democratic side on this issue, and that includes removal of current management of Detroit auto companies, and fuel efficiency targets raised higher than legislation passed recently under heavy lobbying pressure from these automakers. Contraction of automakers and job contraction should be differentiated from liquidation of assets. The contraction of automaker jobs not just at the Detroit companies but also at Japanese plants in the US is going to happen even with a government loan to Detroit as Honda is also reducing its workforce and this will happen at Toyota also. The carefully planned bankruptcy with carefully and fully addressed warranty and other issues could be made to work along with sufficient government loan money in the $50-$70 billion range in return for equity and other conditions, and its not clear why the management of the Detroit auto companies see it as impossible and not just difficult, when they are already facing considerable difficulties in this market and with public opinion. Rampell talks about how jobs lost are not recoverable, and this is fairly obvious considering that the Japanese and the Germans are unlikely to relocate in the same areas that Detroit has located its plants , and prefer to go and build green plants to specification, and hire very carefully so that workers with the Toyota or Honda frame of mind are hired to work there. This can change depending on individual circumstances but is what they generally prefer to do. Also its important to bear in mind that forecasts that are being used of 13-14 million vehicle market in 2009 are just guesses, it could turn out that the sales drop to something like 10 -12 million vehicles, in which case there will be contraction of jobs on a large scale even at the Japanese and Korean and German plants which there is even now but on a smaller scale. ...

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The reduced availability of child care services, longer time it takes to get steady jobs in a slow growth economy, and the "safety trap" of becoming used to a freer lifestyle, areincreasing the average age at which Italian women have their first child. It has moved up from about 30 to 31.4 in 2012. As more women pursue higher education and get university degrees the trend is to focus on jobs and lifestyle. As grandparents get older and the lack of enough preschool centers this makes child care harder, in a nation where 68% of children under 10 are still cared for by grandparents. At present only half of Italian mothers work, according to the OECD, compared to 74% in France. This worsens the demographics with currently 150 people over 65 years for the 100 under 14 years, and the figures increasing with fewer young people to support retirees, according to Istat.

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Denning points out the shift in Mexico to becoming a net oil importer from the U.S. by August 2013, that put new urgency to the passage of the oil law in Mexico for attracting foreign investment. Mexico's exports of crude oil were about 0.9 million barrels a day in August 2013. U.S. refinery products imported by Mexico including gasoline on an oil equivalent basis were 0.8 million barrels a day. Mexico became a net importer of energy in March 2013. Another negative factor in the energy trade between Mexico and the U.S. is increasing U.S. oil production and refineries in the coast of the Gulf of Mexico being full. As this U.S. production increases Mexico would have to offer competitive discounts in the future. Pemex drillled in all 25 deepwater wells in the last decade, according to Sanford Bernstein. The U.S. in the same period drilled 1500 ultra-deep water wells alone, showing the urgent need for foreign investment in the Mexican oil industry.

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Friedman highlights the importance of an interview with President Obama by Atlantic magazine's Jeffrey Goldberg. In this interview Obama gives a thoughtful understanding of what it means if Iran acquires nuclear weapons. The greatest danger is in nuclear proliferation. Obama brings to this an understanding of this issue from the time he focussed on this issue as a student at Columbia University, when he described the risks of nuclear proliferation in the Columbia student newspaper. There is the risk of an escalation in the development of nuclear weapons in the Middle East first, and then elsewhere. And there is the risk that nuclear weapons fall into the wrong hands. The situation would create problems like that faced in North Korea or in the India-Pakistan region, but increased by many times the current dangers. The entire nuclear de-proliferation effort and the efforts to de-nuclearize weapons stockpiles that took decades to accomplish with the Soviet Union could come undone- and it would then be necessary for all countries to invest in advanced technologies for defending against nuclear weapons, setting in motion another arms race. The current situation reminds people that the issues raised by nuclear weapons development will always be with us, and require a worldwide concerted effort, at official and public level, bringing in scientists, public opinion worldwide, and educating the public in all countries of the larger danger to mankind. The issues need to be put in the right context beyond nations and politics, beyond international conflicts and competing interests or ideologies, including Israel, Iran and any other nation looking for nuclear weapons as a solution for conflicts. Shultz, Perry, Kissinger and Nunn after a series of meetings at the Hoover Institution called for the update of the old policies of nuclear deterrance based on mutually assured destruction used with the Soviet Union, to reflect the new threat of terrorism- in an op-ed NYT 3/7/2011. The focus of this effort is on a new Fissile Material Cutoff Treaty, with all nations giving up nuclear material to an international nuclear material bank. Senator Obama strongly supported the efforts of Senators Lugar and Nunn in de-proliferation work after the collapse of the Soviet Union and joined the senators on one of their trips- Broad and Sanger, NYT, 7/5/2009. A major effort to reduce NATO, U.S. and Soviet nuclear weapons is called for to lead by example, providing a framework for other means of settling regional conflicts and educating public opinion in these countries, and moving forward the negotiating of the Fissile Material Cutoff Treaty. In many ways public opinion will have to lead the way in all countries as governments can lag behind- the efforts of Sam Nunn and Dick Lugar and the many unnamed people in the Soviet Union who aided their efforts show the importance of this....

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Jan Corzine, Governor of New Jersey has talked to governors from the states of Ohio, Michigan, Wisconsin, New York, and Massachusetts about how best to execute an effective economic recovery stimulus program with the federal government. Here are the ideas they have come up with. The stimulus should cover five areas, infrastructure, countercyclical programs, housing, education, and middle class tax cuts. The principle to keep in mind is to take advantage of the strengths of the federal government and of the state and local governments. Infrastructure investment should be intelligent ones to modernize the capabilities of the country for the next phase of development and competition in the global economy and in making far reaching changes in transportation and energy for sustainable development in a global economy. A key point of Corzine's here is that safety net social programs will need to be shored up or the stimulus effects will be lost. Over the 2 years 2009 and 2010 he suugests the federal government boost its countercyclical spending by at least $250 billion. And it should do this by increasing the federal medical assistance percentages, federal share of Medicaid costs and other health care related programs such as reimbursement to hospitals for treating the uninsured, Temporary Asistance for Needy families, and child care grants. He proposes doubling the federal funding of unemployment trust funds under the Unemployment Insurance Modernization Act, with incentives to cover vulnerable low-wage and part-time workers who are often denied unemployment benefits. Corzine emphasizes this. That even if the Obama administration puts large sums into infrastructure spending, cutbacks in state and local safety net programs would cancel out much of the effect of the stimulus. The reason is simple while the federal government is adding to jobs on one hand, the states without the money would be cutting back jobs and services. This point will be critical in making the stimulus work. The other point Corzine appears to emphasize by quoting Roosevelt at Oglethorpe University in 1932, is that bold experimientation not clinging to rooftops in the flood, will be needed....

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Prime minister Modi campaigning in his home state of Gujarat, and taking control of the campaign in the state. He has visited the state to launch the bullet train project, a new ferry service for Saurashtra, and for the Narmada dam completion.

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This WSJ editorial points out that the lack of action from the Obama administration has led to the current situation in the Middle East with Russian intervention, the wave of refugees from Syria, and the increasing sectarian conflict. It cites from president Obama's address to the UN General Assembly that "the nations of the world cannot return to the old ways of conflict and coercion," yet failing to take action in the Middle East to prevent this from happening.