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David Stockman was Budget Director under President Reagan and known for his prodigous grasp of statistics in the national budget. Here he takes on what he describes as disproportionately large and destructive banking system for the U.S. economy, which he says the nation desperately needs less of. He supports the small tax of 0.15% of the debts other than deposits of financial conglomerates. His words are some of the strongest yet to come from one of the most prominent people on Reagan's economic team about how the nation's banking system has beome unproductive in supporting economic activity which is its reason for existence. The destructive effects on social cohesion and the middle class is emphasized. He says for years the Fed has run an insanely loose monetary policy that has encouraged this behaviour and socially detrimental profit seeking by the banks and other companies. He sees the big banks as dangerous institutions in today's economy engaged in a bull market culture which believes in entitlement and profitseeking behaviours regardless of its detrimental nature for the national economy. The recent profits of the banks in 2009 and the resulting bonuses are a result of the Fed's easy money policy and bank's gambling at the Fed's monetary casino as he puts it, with money obtained at little cost from Fed-controlled money markets. This article helps to eliminate the distorted perspective in today's climate that paints criticism of splitting up the banks, or otherwise restricting banks in engaging in proprietary trading and risky behaviours, as government interference. As Stockman puts it these banks are already in some sense wards of the state and not private enterprises and this issue is not relevant. The question now is how to set things right and this involves possible solutions such splitting up banks that are too big to fail, restricting risky behaviours and preventing proprietary trading, and other actions as unusual steps for unusual times to get things working back to normal. In other times Stockman would not have said this in an op-ed piece if this were not so....

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The Economist points out that China's total debt of government, corporate and households has grown by about 100% of GDP since 2008. The 2009 crisis led to rapid increase in debt. It is now about 250% of GDP, according to the Economist. Slower growth of below 7% risks reducing China's ability to service this debt. About half of this debt is owed by state owned companies and property developers. China can use its sovereign reserves to continue supporting bank and state owned companies. Investor's are pricing bank shares to reflect about 10% of this debt as bad debt even though government estimates are much lower. The reserves provided China time to fix the banking system since 2008, yet the debt keeps growing and China has failed to take strong action in the last 6 years. Complacency is a problem, and the incentives for local governments to continue prior practices that increase debt continue. As Krugman and other experts have pointed out at some point the rules of finance will apply to China as they have for other countries that faced a debt crisis- Japan in the late 1980's, South Korea and other Aisan countries in 1997, and the U.S. in 2008. Even without a crisis through deft managemen and use of reserves China risks zombifying the economy as old loans are backed up by new loans, with the further risk of misallocation of capital or poor use of capital. This lowers productivity of capital and hurts development. With poor statistics such as the figure of 1% of debt being bad debt cited here, the problems of complacency can be magnified, as there is less reason for a strong response....

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The Economist cites estimates from the Bank of England showing Britain's national output peaking at 1.5 trillion pounds in 2007 and not likely to return to that level till 2015. It points to fears of a lost decade. Meanwhile debt is rising from 600 billion pounds in 2008 to 1.1 trillion in 2012, making reducing the debt to GDP ratio by 2017 even more difficult. Lower growth affects tax revenues even as social benefit costs increase. Part of the problem is that from 2009-2010 to 2011-2012 public sector net investment declined from 48.5 billion pounds to 28 billion pounds. The Economist suggests Chancellor Osborne take up an additional investment in infrastructure of 28 billion pounds, even borrowing 14 billion pounds in the bond markets if needed, as a prudent step to revive growth. Small improvements in rail, roads and bridges could make up for a lack of large projects. Other suggestions include expanding the "funding for lending" scheme with banks to get capital to small business, finding more savings in the National Health Service, and changing the way Britain taxes development land that remains undeveloped. Britain, now joins, Portugal, Spain, France and Italy, in the failure of austerity measures alone creating a return to economic growth and lower deficits. In 2013 improving competitiveness and boosting economic growth become critical following years of austerity measures....

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Hillary Clinton narrowly loses the Michigan primary to Bernie Sanders in March 2016, as the Sanders campaign focusses on Clinton's support for trade agreements that hurt American workers and lead to loss of manufacturing jobs. About three fifths of voters in the Michigan primary considered this a major issue. Many less educated younger workers see their job prospects diminish and wages drop with free trade that hurts American manufacturing jobs. Bill Clinton signed the NAFTA agreement with Mexico, and as a member of the Obama administration Clinton supported the Trans Pacific Trade Agreement, later opposing TPP when she left the cabinet. Sentiment against trade that hurts manufacturing jobs in the U.S. is strongest in midwestern states such as Michigan, Ohio and Illinois. This was also a major issue benefitting the Liberals under Justin Trudeau who won in Canada's industrial Ontario province which has suffered hollowing out and loss of manufacturing jobs under the Conservative Harper administration. In the U.S. the issue goes back to the Clinton Administration for two decades. New jobs created by Apple, Google, and other tech companies pale in comparison with the industrial jobs created in another era that benefitted working class families. This issue and high unemployment or under employment, lower wages for working class families, was a major issue in the 2016 U.S. presidential election campaign. Widening wealth disparities, and lack of upward mobility, high tution and healthcare costs for ordinary families, dominated the campaign in the U.S....

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The unemployment rate in the U.S. state of Ohio drops to 7.2% in June 2012 from 10.6% in the second half of 2009. But polls show two thirds of the respondents see the economy as being worse or the same as in 2011. Because of lower wages in some industries such as auto manufacturing which are reviving there appears to be a lowering of incomes and expectations.

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

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Robert Gordon of Northwestern University describes the problems in American Education and how this is the first generation which will not do better than its parents in educational attainment. The cost says Gordon comes in lower potential economic growth rates.

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Krugman questions whether the assumptions behind the austerity policies are true- that they would inspire confidence in economic recovery, or that in the absence of austerity policies borrowing costs would go through the roof. The recent events in Holland with the collapse of the government in the Netherlands- when a party leader supporting the government said he did not want to hurt pensioners in the Netherlands just to satisfy German opinion- and the mood in France with economic anxiety vote going to Marie Le Pen and Francois Hollande in the first round of presidential elections, shows that very little confidence has been created. High unemployment and economic anxiety are leading to a reappraisal of austerity cuts that depress the economy and reduce tax revenues, but Krugman says no changes are taking place to correct these policies. This is true for Spain with its high unemployment, and Britain which now has two quarters of negative growth.

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A Tax Policy Center study (joint project of the Brookings Institution and the Urban Insitute) shows $157 billion would be generated in the first year from an increase in taxes on the top 1% of income earners in the U.S., about 1.13 million households earning average $2.1 million, by increasing the federal tax rate from current 33.4% for this group to 40%. This could pay for a program to provide tution free education in America's colleges and universities. Even increasing the federal tax to 40% on the 115,000 households earning over $9.4 million on average, the top 0.1% of American households, would generate $55 billion in the first year, enough to pay for the $47 billion cost of tution free education at all of America's public colleges and universities, according to the Tax Policy Center. Economists including Stiglitz and others, point to significant impact of revenue generated from such a tax when applied to improving educational opportunity for the middle class and lower income groups. Education is a great leveler of income disparities as seen in the U.S. after World War II. During recent decades the highest income groups weren major beneficiaries of tax and economic policy, at the very time the middle class and factory workers were hit hard by global competition which lowered wages and exported jobs. The interest rate policies of the Fed after boom bust cycles also favored large investors in equity markets over smaller income earners with savings account deposits, whose savings experienced little growth under interest rates close to zero. ...

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Spain's central bank was lauded for macroprudential supervision before the housing bubble burst. Will China's central bank and financial authorites which have managed the housing bubble upto this point face similiar problems? Can China be the sole exception even as housing bubbles burst with wide repercussions in the U.S., UK and Spain? Nicholas Lardy, of the Peterson Institute of international Economics, says urban housing stock makes up 41% of Chinese household wealth in 2011. The same figure for the U.S. is 26%. Chinese buyers invest in homes because low interest rates on savings accounts cannot keep up with inflation. Real estate investment was 13% of GDP in 2011. Home ownership is a recent development in China, only since 1990, Chinese have never experienced large price declines. Household debt as a percentage of disposable income has increased significantly in recent years, up to 53.6% in 2011 from 31.3% in 2008, according to Lardy.

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This article by Gerald Seib in the WSJ says not enough was done to attract white working class voters- critical for Trump in industrial swing states- at the Democratic National Convention. He says only on the last night of the convention did a factory worker, a home care provider and a laid off restaurant worker, appear on the stage. These are the voters who have drifted away from the Democratic Party. The convention draws ironically on Republican themes, defense foreign policy as in the speeches by Leon Panetta and retired General Allen, and in efforts to portray Hillary as more human with frailties but a 40 year public service record that includes exceptional work for children. Actually the appeal to traditional Democratic white working class voters was there always in the background with most of the speakers, as it colored most speakers comments including Biden and Kane, who have the colloquial language and style to appeal to this group. The appeal to traditionally white working class voters is in the party platform with the $15 minimum wage for service industry workers, and in the promise to provide college free tution for people making less than $125,000. The Democrats simply painted this with a different brush. Contrasting the callous attitude to the poor and struggling of billionaires like Trump with those who have fought for pushing people up the ladder since FDR- with the lapses in recent years from the tech boom which left some workers short now being addressed. This was expressed by Hillary Clinton saying to Bernie Sanders voters- "your cause is our cause." For Democrats it was more effective to tackle the traditionally Democratic working class voters first, before shifting to working class voters who are border line Republican because of social issues or those who are so disaffected so as to be beyond reach. ...

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The ECB's annual report for 2012 and the role the ECB under Mario Draghi played in the eurozone crisis in 2011-2012. The gains made in eurozone financial architecture, especially the agreement for the ECB as financial supervisor for European banks. The ECB sees itself as the supervisor for all European banks- the French position in the discussions in Brussels. The agreement of Dec. 12, 2012 only says banks with assets over 30 billion euros, or 20% of GDP of countries, or operations in two or more countries will come under supervision by the ECB.

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Joe Nocera describes his personal situation which also reflects the situation of the average investor in his 401(K) for retirement - inexperience in handling the boom-bust cycles in the market and loss of savings, especially in the last two decades with sharp swings in the market. The Employee Benefit Research Institute statistics on savings of the average American are striking, dismal is the right word- only 22% of workers 55 or older have more than $250,000 set aside for retirement, and 60% have less than $100,000 in a retirement account. The average savings of an American near retirement are $100,000.

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The memo to U.S. president Reagan written by his economic advisors in November 1980 before his first inauguration. Inflation was running at 13% and the economic problems looked as intractable as they do today. Advisors included Milton Friedman and George Shultz. The memo called for setting steady policies for the long run to encourage investment and growth, and at the same time steady monetary policy. This is different from the repeated quantitative easing efforts by the Federal Reserve responding to financial markets, and the Obama administration's stimulus efforts that have not led to long term growth. On the long term perspective the memo said: "The need for a long-term point of view is essential to allow for the time, the coherence, and the predictability so necessary for success." The memo was released by George Shultz.

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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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Galston focusses attention on the major problem facing democracies in Europe and the U.S.- that of providing decent paying jobs and improved economic prospects for lower and middle income households. He cites the surveys from the Pew Research Report and the U.S Bureau of Labor Statistics showing how middle income households median net income remains stuck at levels of 1997, and lower income households at levels of 1996. The median net worth of American households adjusted for inflation presents an alarming picture of being at $96,000 in 1983 and $98,000 in 2013 for middle income families, and being at the level of $12,000 for lower income families the level of 1975. Most of the new jobs as much as 95% are being created in the low wage service sector and the BLS statistics show the future looking much the same- with huge numbers of low wage jobs, fewer decent manufacturing jobs because of automation and jobs shifts to low cost locations overseas, remaining manufacturing jobs in the U.S shrinking by another 800,000 to 7% of the workforce by 2025. The result is the alarming rise of populist politicians like Trump in the U.S., Le Pen in France , and populist politicians in Hungary and Poland. Cultural liberals in the Democratic Party and the Republican establishment are both threatened by the rise of cultural illiberalism, xenophobia, and nationalism, as economic anxiety increases, and fears of terrorism and immigrants add to this anxiety. Progressive tendencies in the Republican party since the days of Theodore Roosevelt and of professional elites in the Democratic Party could become endangered if no serious effort is made to come up with solutions to the problems these trends present. The disconnect between the concerns of the working and middle class and the professional elites as the gap widens and the social compact in America and Europe breaks apart, means a new mindset will be required in America and Europe to deal with this. ...

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Under the rules for the European currency and the European Union there is no mechanism or process of fines or other sanctions to promote compliance to debt and deficit rules. In the case of Greece, an examination of budget reports shows that Greece never met the deficit rule of 3% for any year except 2006 and it has never been within 30 percentage points of the debt ceiling. Greece's statistics are faulty and deficit figures are continually being revised upwards. Several times the figures were quadruple what was initially reported in late 2009, for instance the deficit figure was 3.7% of GDP, then revised to 13% of GDP, setting off the current crisis for the Euro and the European Union. In 2001 Greece failed to reflect $2.2 billon in military expenses. According to Eurostat, the EU statistics authority this was 10 times what was saved from the derivatives swap arranged by Goldman Sachs to trim Greece's deficit. That transaction trimmed the deficit by one tenth of a percentage point.

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Automobile parts imports into the U.S. have increased from $89 billion in 2008 to $138 billion in 2014, up from only $31.7 billion in 1990. In a huge shift in wages with increasing global competition wages at an American Axle plant in Michigan at $10 an hour are about what Target stores and Wal-mart pay for retail workers. An new generation of workers in manufacturing are seeing a shift from being in the middle class during their parents generation to lower class, with this downward pressure on wages as parts are manufactured in places such as Mexico and China.

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In remarks published in English on the Bundesbank website, Jens Weidmann, Bundesbank president and member of the ECB governing council said: "The ECB should be aware of its independence. This also requires it to respect, and not to overstep its own mandate." This is seen as a pushback by the Bundesbank to ECB president Draghi's comments on July 23, 2012, about doing all that is necessary to keep the eurozone together. Weidmann referring to the situation in France recollecting his days as a student in France in 1987, said there were "two different worldviews colliding." And that this situation prevailed in all political debates right up to the present day. He says about deflationary tendencies -"If these countries go through adjustment processes which result in decreases in wages and prices, then this constitutes one-off shifts in the wage and price structure and not deflation."

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An indepth look at Mexico, its assets, its huge potential and what is holding Mexico back. It ranks much higher than Brazil in many respects- higher investment as a fraction of its GDP, technical education, an easier place to do business, less regulation, better management talent, more industrialized. In 2010 Mexico had $400 billion of business with the U.S. With rising Chinese wages Mexico is an attractive place for foreign investment, with a hardworking and educated workforce. Mexico suffered badly during the 2008 recession in the U.S. It is trying to reduce its dependence on exports to the U.S in key areas such as the automotive industry. Exports to the U.S. by the automotive industry are now 65% of the total, and the auto industry association in Mexico is working to bring this figure to 50% by exporting to Latin America and Europe. Economic growth was 5.4% in 2010, and expected to be 4-5% in 2011. Drug violence may have reduced the growth by one percentage point according to some estimates. The think tank, Mexican Institute for Competitiveness, estimates that economic growth would be 2.5% percentage points higher if labor market and competition laws are changed, and the oil industry is opened up to foreign investment as happened in Brazil. A study by OECD and the Federal Competition Commission (CFC) of Mexico has shown that 31% of Mexican household spending goes to products operating in high price monopolistic or oligopolistic markets. The bottom ten percent spend even higher proportion of incomes, around 38%, for products supplied in such markets. This includes pharmaceuticals, airline travel, banking, and electricity. Taking on these cartels is a difficult task. The CFC is beginning to take the first steps in this direction, in what will be a long road to fair prices for Mexican consumers. Banking was opened to Wal-Mart. The collapse of Mexicana was an opportunity to auction landing slots to other airlines. An auction system has been developed by CFC for drugs. A new competition law sets penalties for collusion in pricing, with upto 10 years in jail. And Carlos Slim's telephone monopoly was fined $1 billion for its telecom monopoly practices. In 2009 the Calderon government shut down Luz y Fuerza, a state electricity company costing the governmment $3 billion in subsidies for an highly inefficient operation. ...

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Moritz Kramer, a managing director at S&P, says Spain, Italy, France and Portugal cannot depend on austerity measures and cuts in spending alone to resolve the eurozone crisis. This is only one aspect of the problem facing the countries in southern Europe. The major reason for the problem is the lack of competitiveness in their economies. Nobel winner Stiglitz also points this out and adds that its important to note that the human and natural resources of Europe are the same and the potential just as good today as before the eurozone financial crisis. He says southern Europe has failed to utilize its human and capital resources and improve its technologies in ways that would make it more competitive with Asian countries. Experts point to the decade it took Germany to address problems created by inflexible labor markets, wage competitiveness, and investments in technology and human resources to get to where it is today.