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It makes for good political rhetoric, but in reality the flow of money goes both ways. A lot of investments are made by American companies overseas. This time the flow of oil money because of high oil prices, from the USA and Europe to the Middle East is being recycled back to the USA in the form of investments in the US through small equity stakes in companies and more so through purchases of capital equipment and services to build Saudi infrastructure projects. The $500 billion investment plan over several years in Saudi Arabia is to build everything from new cities, aluminium plants, electricity generation plants and chemicals and plastics plants. The fears and rhetoric are overblown, as the USA also invests overseas with holdings according to the Treasury department of $6 trillion of foreign stock and debt. The acceleration of foreign investment in the US is to be seen in the numbers, as the dollar gets weaker, and its more advantageous for Canadians and Euuropeans to invest here. Last year $414 billion of foreign investors money went into buying stakes in American companies and building factories and purchasing stock, according to Thomson Financial. Thats up 90% from 2006 and represented one fourth of all announced deals. This year in just 2 weeks foreign investors poured $22.6 billion in just the first 2 weeks of January, and that represents one half of all deals. Shows how quickly the picture is changing. One way of looking at it is that Americans buy a lot of foreign goods and the money Americans use to pay for a lot of imports is now being returned to the USA in the form of foreign investments. Note that foreign investment is desirable because it brings new ideas and technology and new management methods to the host country from other countries. These foreign investors in many cases are able to make these investments overseas because they are good at what they do, having them in the host country benefits the host country and shakes up competition in the particular industry in the host country that is receiving the investment. This is why economies once relatively unfavorable to foreign investors like Japan and S. Korea are now passionately seeking foreign investment to make their economies thrive through the exchange and inflow of new ideas and ways of doing things. The same can be and is true for the USA. The other aspect is that most of the investment is still from countries like Canada, Germany, Japan, S. Korea which are big free trade partners of the USA. Manufacturing investment is heavily skewed to European and Japanese companies. Foreign multinational investment (Sony, Toyota etc) grew to $43.3 billion in 2007 from $39.2 billion in 2006 according to OCO Monitor, and will accelerate significantly as companies like VW and other German companies find it cheaper to build in the USA and shift more manufacturing here. To get an idea why the rhetoric is overblown Canada spent the most in buying American companies, $65 billion in 2007, according to Thomson Financial. Russia spent $572 million and India $3.3 billion. How will this improve the chances of the USA making it out of this recession? Five million American work for foreign companies in the USA. Of these one third are manufacturing jobs. These jobs pay about 30% more than jobs in American owned companies. Figures from Treasury Department. There will be more of these jobs as companies like VW build plants here. Roubini Economics estimates that an infusion of about $300-400 billion is needed for the USA to overcome the effects of the current mortgage and credit crisis. $414 billion was invested in the USA by foreign investors according to Thomson Financial in 2007, going up from something like $200 billion in 2006. If this pace continues becasue of some of the same underlying reasons as the weaker dollar, stronger economies overseas, then $200 billion additional investments this year would add that much to a stimulus package of $150 billion by one estimate, to provide a boost of somewhere around $350 billion. In the range of the needed boost. Companies like IBM and GE which have significant investments in India and China and investments in software or infrastructure industries that are growing rapidly or Caterpillar with growth in construction overseas, may keep growing through this downturn. This recession may hit selectively and differently, not be a complete hit to the USA economy, and could prevent it from going beyond 2009 with recovery in 2010. ...

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Reps. Eric Cantor (Va.), Kevin McCarthy (Calif.) and Paul Ryan (Wis.) have jointly written a book "Young Guns," that completely distances the new leadership in the Republican party from the leaders of a prior generation. The book says the older Republican leadership "betrayed its principles," by not controlling spending. See the the link to David Stockman who has criticized previous Republican administrations for their attitude to spending, including President Reagan. A recent NBC/WSJ poll shows only 24% of those polled seeing the Republican party positively. The idea is to differentiate the younger leaders as new voices in the party, different from the party's previous role.

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WSJ reporter Bob Davis writes this report on the end of the China economic miracle in 2014 as he completes a 4 year assignment covering China. He says China's economy is slowing rapidly and he is pessimistic abou the future. Construction cranes visible across China's skyline says Davis, can no longer be interpreted as growth inducing. With rows upon rows of empty flats in third and fourth tier cities which account for the bulk of the increase in housing construction, the consequences of a debt fueled construction boom are easy to see. Davis cites the IMF on the dangers of credit fueled growth in China- only 4 countries have experienced as rapid an increase in credit to GDP ratio in 5 years. Each of the 4 countries Brazil, Ireland, Spain and Sweden experienced a sharp decline in GDP growth and banking crises following the credit bubble. Estimates of debt to GDP are as high as 250% for China. Krugman, Roubini and other economists have warned about the credit bubble, saying China is no exception to the rule for the risks posed by such a bubble. ...

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The European Stability Mechanism made its first short term debt auction Jan. 8, 2013, by selling 1.927 billion euros of treasury bills. Japan remains a key investor. Japanese finance minister, Taro Aso, said Japan plans to to be an active investor in the ESM bond sales. He told a news conference: "Japan will purchase some ESM bonds using its foreign exchange reserves as it monitors progress in efforts to stabilize the European situation." Japan holds $1.27 trillion in foreign exchange reserves. The move pushed the yen lower. Investors pay the ESM to keep cash for three months- the ESM treasury bills had an average yield of minus 0.0324%. The ESM fund will be used for aid to Spain's banking sector, Greece, Ireland and Portugal. Plans are for the ESM to issue three month and six month bills twice a month to reach 18.5 billion euros by the end of 1st quarter 2013. The ESM fund rating is Aa1 by Moody's Investors Service, and AAA by Fitch Ratings.

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Difficulties facing Britain which depends on continental Europe for exports and would be affected by whatever happens in Europe, and yet is reduced to being on the sidelines. This comes at a difficult time for the Cameron government, which is a coalition of Conservative party members who are euroskeptics, and the Liberal party members who are the most europhile of the the three major British parties. Sarkozy and Merkel have made clear that they would move ahead with a closer fiscal union within the eurozone, no matter what Britain's views are. This leaves David Cameron's government to what Labor leader, Ed Miliband, called "handwringing," as Britain can do little about the future direction of the EU. Cameron is able to please backbenchers in parliament from his party with talk about protecting British interests, but has no neotiating leverage, according to Steven Fielding, director of the Center for British Politics at the University of Nottingham. Britain may also have antagonized European leaders. Sarkozy said about Cameron and British government views: "You say you hate the euro and now you want to interfere with our meetings." This also happens as Britain faces rising unemployment, and deficits larger than anticipated after austerity measures taken by the Cameron government....

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Experts say there may not be much difference whether a voluntary deal is reached between Greece and the Institute of International Finance or a deal is forced on private bondholders by Greece for the 93% of Greek bonds that are based on Greek laws. Most of the large banks that hold Greek bonds will be subject to persuasion by European authorites (EU, ECB) to accept the deal offered by Greece that brings debt down to 120% of GDP by 2020. The remaining holdouts are the hedge funds that will want to opt out of a voluntary arrangement anyway, because a forced deal by Greece would allow them to collect payments on their credit default swaps. Adam Lerrick, an expert on sovereign debt restructurings, says the hedge funds and other private bondholders are framing the discussion into one of a voluntary agreement that is orderly and an involuntary agreement that is disorderly, as a tactic to scare the European authorites (the EU, ECB) and Greece. He says not only can forced restructurings be orderly, but in this case the improved prospects for Greece with serious debt reduction would lead to a ratings upgrade for Greece. Some hedge funds have said they will sue if forced into the deal. Michael Waibel, at the Lauerpacht Centre for International Law at Cambridge University, says the case would first go to Greek courts where it would be received without much sympathy, and then to the European Court of Human Rights. Only the small number of bonds under Swiss and English law with pari passu clauses insisting on equal treatment of bondholders have any prospects, and even then legal enforcement of any awards is uncertain as shown in the case of Argentina. The 93% of bonds under Greek law have no such clauses and this gives Greece the option for special treatment of bonds held by the ECB....

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Floyd Norris says the announcement by the ECB on Dec. 20, 2011, that 523 banks borrowed 489 billion euros under the newly created Long Term Financing Operation goes a long way towards giving Europe time to address the debt crisis. A major problem is recapitalization of European banks and the ECB's action helps address this problem. This is one of the achievements of the December summit of European leaders, though it was not the way markets had expected. Markets were focussed on large scale bond buying by the European Central Bank or issuance of euro bonds. ECB head, Mario Draghi, aware of widespread opposition in Germany to such proposals made it clear this was not going to happen. The Long Term Financing Operation of the ECB provides unlimited amounts of loans to European banks at 1% for 3 years, and accepts sovereign government debt as well as other types of securities as collateral. The result of this action was to lower the yield on a recent Spanish bond auction to 1.7% for three month bills from 5.1% the prior month. Spanish and Italian banks can now buy government debt of their countries and use the bonds as collateral at the ECB for three year loans at 1%. This Norris estimates will generate profits of about 37 billion euros for European banks from the difference between the ECB rate of 1% and the rate on two year bonds of Spain and Italy of 3.6% and 5.1% respectively for the bond purchases of 489 billion euros- calculated on a spread of 2.5 percentage points over three years. Another infusion of funds from the ECB will occur in February 2012. The new capital infusion gives European banks less reason to reduce lending in the eurozone as they work to meet the higher capital reserve requirements set under new Basel III rules. This is especially important given the austerity measures being implemented across the eurozone countries and Britain to reduce government deficits, and in light of the lower growth expected as a result....

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GDP growth in the eurozone was 0.3% for the 4th quarter 2014. For 2014 eurozone GDP growth was 1.4%, according to Eurostat. Growth in GDP for Germany was 0.7% for the 4th quarter and 2.8% for 2014. Retail sales in December were particularly good in Spain and Germany, with sales up 2.8% for the eurozone over the prior year. Italy's GDP growth was stagnant and France's was 0.1% for the 4th quarter, showing that Germany and Spain are leading the way for eurozone recovery.

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Greek leader Alexis Tsipras of the Syriza party, the Coalition of the Radical Left, talks to Angelos and Granitsas of the Journal. He says it is in the interests of the European Union to continue funding to Greece, but if the EU stops the funding Greece will stop paying its debt. It will then use the funds going to the debt burden for paying retirees and workers. And it will also tear up the loan agreements signed earlier, and scrap plans for layoff of 150,000 workers in the government services by 2015. He would also reverse measures to lower private sector wages. He also looks favorably on nationalizing banks to better channel lending to where its needed. In his view it will be difficult for Greece either way. Even with funding Greece's GDP is expected to fall 5-7% in 2012, following several years of declining GDP.

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New York Yimes editorial calls the Conservative party coalition government's austerity budget (the plan to cut 500,000 public sector jobs and terminate unemployment benefits after 12 months), as a gamble on an improbable theory that the private sector can make up for $130 billion in cuts. The editorial says these budget cuts could suffocate a feeble recovery.

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Compared to the situation in 2008-2009 during the global financial crisis with the excess supply of labor, China in 2012 faces an excess in demand for labor. In 2009 about 20% of migrant workers were unemployed when the crisis hit, and wages dropped 10% for migrant workers, according to the Chinese Academy of Sciences and Stanford University. The situation three years later is one of tight labor markets and higer wages. A large stimulus in not only not needed today in the way it was in 2008-2009 as a way to maintain social stability, it would reduce the benefits of the anti-inflationary steps taken in 2011-2012, by putting more pressure on wages and prices. Manufacturing sector wages increased by 20.1% in 2011, according to China's statistics bureau. This may be why the Chinese government is taking measured steps to avoid creating more bad loans through indiscriminate lending, and being more selective in accelerating development projects in the pipeline. According to Hong Kong's new Chief Executive Officer China plans to have about 7% growth. This shift in approach would help China refocus on growth strategies recommended in the recent Development Reform Commission and World Bank Report on China....

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Ariana Huffington of the Huffington Post recalls her days growing up in Athens. She says from her own personal experience that the children should not be penalized for the mistakes of their parents, that the next generation should not have to live desperate lives for the next decade under ECB policies that leave no room for growth. She adds her voice to voices in France, Spain, and other countries in the eurozone about the impact of current EU and ECB policies on Europe, and says exiting the eurozone is a difficult option, but like the Argentine example offers more hope for growth for the young generation in Greece.

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Spain's plan to reduce corporate taxes by 5% and individual income taxes by average 12.5% in 2015-2016, reversing earlier austerity measures. A similiar move in Italy.

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The State Budget Crisis Task Force is co-chaired by former Fed chairman Paul Volcker and Richard Ravitch, a former lieutenant governor of New York. The Report of the Task Force says rising pension expenses and healthcare costs for public sector employees and Medicaid costs are severely reducing the ability of states in the U.S. to fund essential infrastructure improvements, education for low income students and other services. The report said there were six major threats to the fiscal situation of states- including Medicaid spending, underfunding of retirement, "budgetary gimmicks" to address the short term needs, and uncertain tax revenues. Ravitch told a news conderence: "It will be a hell of a lot more expensive to deal with theses problems in five or ten years than to deal with them now." The report focussed on California, New York, New Jersey, Illinois, Virginia and Texas. It was funded by the foundation of Blackstone Group co-founder Peter Peterson, and George Soros's Open Society Foundation....

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A survey by the Nikkei daily shows 53% of respondents do not approve of a plan by the Noda administration to raise the 5% sales tax to 10% by 2015. There is considerable dissatisfaction with the government for its failure to cut wasteful spending. The government recently approved a dam project that is seen as wasteful spending. One member of parliament, Yasunori Saito, said he was leaving the ruling Democratic Party of Japan, saying "no tax hike until we get out of deflation."

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Serious concern about lower consumer spending in the U.K that would reduce growth and reduce government tax receipts. The unemployment rate has remained at 7.6% for 22 months. Wage levels are not keeping up with inflation of about 4.5%. The increase in the sales tax from 17.5% to 20% has added three quarters of one percent to the inflation rate, according to the National Statistics Office. VocaLink says annual wage growth in the three months through May 2011 was 1.8%, much lower than the inflation rate. Deep spending cuts are going into effect in 2011-2012, and about 300,000 jobs would be lost in the public sector with spending cuts by 2015. The IMF has reduced its estimate for growth in the U.K. to 1.5% from 1.7%. At the same time the Bank of England is under pressure to increase the interest rate of 0.5% (which is a record low), to control inflation. Britain under prime minister Cameron plans to cut government spending from 47% of GDP to 40% of GDP over six years. This will take 6 years of spending cuts, something even a previous prime minister Margaret Thatcher was not able to do. The government's Office of Budget Responsibility predicts a drop in the deficit from 11% of GDP to 7.9% by March 2012. Yet a lot depends on government tax receipts which in turn depend on economic growth. Britain showed a large deficit of 10 billion pounds in April 2011, and the situation is fraught with a high degree of uncertainty....

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Jeb Bush on the Republican party and lack of willingness to compromise to come up with viable solutions to economic problems facing the U.S.

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The Council of Mortgage Lenders forecast seems to quite optimistic considering the problems the US housing market is facing in November 2007, "prices will rise only slightly", with foreclosures rising to 45,000 from the current 30,000 in 2007, and house sales dropping by 15% in 2008. The buy-to-let market would be affected and the home buyer's budgets strained with British mortgage debt at 150% of household disposable income would affect new sales. The Economist forecast is more to the point predicting GDP growth in the UK will slowdown to 1.9% from 3.1% estimated this year, with allowance for serious downward risk from a big housing jolt to the economy in 2008. US economic growth was recently estimated by the US government reporting agency at 4.9% revised for the third quarter and the expectation was for flat or no growth in the last quarter. This suggests a dramatic drop. And this may not be fully digested by the markets as there is more bad news to come in the housing market in the USA in 2008....

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The U.S. labor force participation rate is still at a low 63.2% in March 2014.

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Zhou Xiaochuan, is head of the People's Bank of China since 2002. For a long time Zhou has tried to convince party leaders in China to make financial sector changes. The new leadership of Jinping-Li Keqiang has now adopted most of the road map and priorities drawn up by Xiaochuan. The first is bank deposit insurance, which would especially protect small depositors and provide a basis for new private banks to compete with large state owned banks, creating competition in the financial sector. By supporting creation of privately owned banks impetus could be given to loans to the private sector to rebalance the economy away from state owned banks and state owned enterprises. This is a key goal in the road map drawn up by the think tank Development Research Center (DRC) which has the backing of premier Li Keqiang. Competition from new private banks would let banks compete to offer higher rates to depositors, another goal. In a September article for the Communist Party Seeking Truth magazine, Zhou pointed out the pressing need for " supporting private capital to set up private banks and guide them to position themselves in serving small and micro companies." These new companies especially in tech and information technology fields can be the new drivers for growth in the future as the burst of infrastructure building generated growth slows down. The one area Zhou faces resistance is his idea of opening up China to foreign capital inflows and outflows. Here critics,including younger economists, say this protected China in the Asian financial markets crisis of 1997, and would protect China in the event it faces outflows of the type that are happening in India in 2013 after the U.S. Fed's plan to withdraw from its quantitative easing. Xiaochuan sees the flow of foreign capital as another way for capital to flow to new private companies and balance away from the state owned enterprises, and for China's savers to be able to obtain more attractive returns. Zhou says his plan would include the option for China to reintroduce capial controls in a crisis. As China's debt to GDP ratio is set on a trajectory to approach the levels reached in Japan before its banking crisis there is greater awareness from party leaders about the need for prudence. Xiaochuan has worked with party leader Jinping's key economic advisor Liu He for years, and has the support of He and Jinping for introducing deposit insurance as a top priority. President Jinping and Premier Li Keqiang see the need for Xiaochuan's experience and foresight "as a talent who can be counted on," as the sense of importance of changing the economic structure has deepened in 2013. Mandatory retirement for Xiaochuan at 65 was set aside to give him a third five year term, and his road map long ignored by former premier Wen Biao, is now at the top of China's agenda. ...