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Luis Gutierrez, Charirman of the subcommittee on Financial Institutions and Consumer Credit, has a bill in Congress that is presented as a reform effort by the lending industry, many Republicans and some consumers. It would allow payday operators in the $50 billion payday lending industry, to charge what amounts to an annual percentage rate of 391%. Rep. Maxine Walters described the bill this way, "we've got to resist any attempt to make it look as if we are cracking down, when in fact we are opening the door to more abuse." This is what Countrywide's Mozilo does in a interview with BW, that he gave at the time the housing and mortgage crisis was breaking open in 2008. And this is the way those in both political parties in Congress, lobbyists, and businessmen who profited from all the unethical things that went on in the housing lending industry, all worked together to undermine the foundations of the country's economy by putting toxic assets at the centre of the credit and banking system of the US. They did this by saying that they were helping the poorer classes get access to housing, and used the term "a piece of the American dream," which seems to be the phrase that opens all sorts of caves in the American imagination, like Ali Baba and his magic lamp and his magic phrase did in Arabian times. And so the NYT editorial writer, facing the greater evil suggests that a smaller evil, an usurious rate of 36% that is an option afforded to military families is a desirable option, when at that rate the loan numbers would double in less than 3 years. All this when the government at federal state and local levels could assume this among the many activities it already undertakes, because it does best those activities, such as some of the public transportation and other services. The government bank could require proof of desperate need, and provide loans for purposes of medical care, care of elderly, care of children, educational needs, food and shelter needs, at rates of 10-15% to make up for losses in loans not repaid, and run it as a nonprofit. Capitalism is also of the good kind and the bad kind, the 391% payday loan capitalism or the loans at pricing that made them unaffordable to low income people, or loans to low income people who did not have incomes to afford housing (where the risk was then passed on to the owners of the securities after a false sertification of A rating had been obtained by undermining the rating process) is a bad kind of capitalism, and the 36% usurious rate for military families is of the tolerably bad kind of capitalism, and the 10-15% kind of payday government sponsored loan is of the good kind of capitalism. And critical to its understanding is what experience has taught us in the last 100 years- that for this good kind of capitalism, there is a critical social role for the government to play. ...

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The outsize effect of a slowing economy on profits of Chinese companies, with higher interest expense on loans taken out for rapid expansion in the boom years, and the lower prices as a result of surplus capacity.

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Investors put in $136 billion into startup companies in 2018, and $141 billion in 2019, as reported in this WSJ article on startups. Before this it peaked at $75 billion in 2000 and did not recover after the 2009 financial crisis till 2014 when it reached about 75 billion dollars.  Much of the increase in money that did not go into infrastructure at low interest rates below zero appears to have been wasted as the ideas for startups declined in quality in the years 2014-2019. Softbank put up a Vision Fund which has run up billions of dollars in losses including a disastrous investment in WeWork. The resistance to shifting all the money at low interest rates to infrastructure has faded with the election of president Trump supported by a Republican party that puts the American worker first for job retention and expansion, and America first in world trade. The pandemic has changed the environment for startup companies as most startup companies are not likely to survive the environment they are in. The big ones such as Uber have built up losses, and ones such as Airbnb are borrowing $2 billion at 10 percent interest in emergency funding. Experience and sound thinking for investments were left behind as capital was wasted in many projects. The time has come to return to investments that have built the basis of the twentieth and twenty first century's advances in quality of life, in infrastructure and strong public services. ...

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Many individual Britishers hold accounts in Icelandic banks that went bust and some being propped up by the Icelandic government like the Kaupthing bank and other banks like Icesave. The Britishers individual accounts are worth billions of dollars and the British government has guaranteed that individual British account holders will be compensated fully. To recover some of this money the British government had to seize the assets of British branches of Icelandic banks. How it did this is interesting. Britain used a 2001 antiterrorism law to freeze the British assets of Kaupthing bank. Alistair Darling defended this by saying that Iceland had indicated that it had no intention of paying the British account holders. So now the British Treasury Department's home page lists Iceland as a terrorist state after N. Korea, Sudan, and Al Quaeda. Under European regulations Iceland is obligated to pay 20,000 euros to each individual account holder in Icesave, but that amount would require paying $5 billion at the new collapsed exchange rate or 60% of Iceland's GDP. Iceland's economy has collapsed and interest rate is 18%, krona down 44%. Its foreign minister says the British decision puts Iceland back 30 to 40 years when it was a poor isolated country. No guarantees have been made by the British government to British local governments, universities including Oxford and Cambridge, and charities, that have billions of dollars in Icesave acccounts and this money is lost. ...

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Paul Singer, head of hedge fund firm Elliott Management and its unit NML Capital, has relentlessly pursued a case in U.S. courts involving collecting full payment on bonds from the Argentine government after its default on the bonds in 2001. Singer bought bonds with face value of about $170 million according to legal filings, but paid a price well below the original value. Elliott and other investors are now seeking $1.5 billion, including unpaid interest. Judge Griesa's ruling in a federal court in Manhattan blocks Argentina from paying bondholders who accepted an agreement for about 25 cents on the dollar from being paid $530 million in interest in July 2014. Argentina has to consider other risks in settling the dispute as more than the $1.5 billion as a one off payment is involved, because as Stevenson points out in another article (see link), the payment could run from $15- $27 billion depending on whether it then has to pay all holdout bondholders or all exchange and holdout bondholders at a higher rate. The result is an intractable dispute beyond the statement of honoring creditor rights, seen by a debtor country facing difficult finances in a different light. Serving as a reminder for Greece, Argentina, and other countries with chronic borrowing and debt history about the need for care and constant vigilance on state finances. In May 2012 Greece paid over $436 million in a one off payment to holdout bondholder financial firm Dart Management in a similiar bind, even as pensions were being cut and Greeks protested daily on Athens streets with over 20% unemployment (see link)....

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The contrarians not just then, but still today, as many economists shrug off facts about the new savings rate and predict a bounce back in 2009. Jeremy Grantham, co-founder of Boston money mangement shop GMO LLC, got the date right, predicting real risk to the financial system in October 2008. He pointed out for years since 2000 that the Fed's moves and the government's fiscal actions (including 2 costly wars) after the 2001 terrorist attacks, had simply postponed "a sensational bust". Its useful to see how these three, Peter Schiff, President of EuroPacific Capital, Bob Rodriguez of the FPA New Income Fund, and Jeremy Grantham agree and where even they disagree, and where the common thread of logic runs. Currency valuations including the US dollar, are the hardest to predict, and the predictions in this regard are also hardest to state for their timing. When separated from the rest of the picture, they give a better sense of what this common thread of logic in most of the crisis picture is. Grantham saw this crisis coming, but its not clear that he sees this running for a long period of a decade. He agrees with Rodriguez and Schiff about another 30% fall in the S&P 500 stock index, but at the same time he predicts over the next 7 years returns in the US stock markets will be 7.5% annually. Rodriguez sees this going on far beyond periods 1 and 2 to periods 3 to 10. And he sees government efforts to jump start the economy leading to some progress and then sputtering out because consumers are turning frugal. The savings rate will grow eventually going up to 10% by 2010. What this means is that as 70% of the US economy depends on consumption spending, and consumption spending has been too deeply damaged to recover in a few years, the downturn will only deepen in 2009 and 2010. This is his central point, and the analysis free of clutter and controversy. Basically he says the policy makers do not fully grasp that the US consumer has turned into a saver, and while the Obama administration puts one foot on the accelerator to stimulate spending, consumers will be pushing on the brakes. Schiff sees difficulties in financing the debt leading to higher interest rates and a serious drop in the value of the dollar. The views on the dollar face a lot of uncertainty as to timing, the relative strength of currencies in countries in Europe which have weak economies (UK, Ireland and Spain), and the rapidly weakening Chinese economy. But the common thread of logic runs through Rodriguez's argument about the savings rate and consumption spending, with debt and the overstretched consumer in the US running through every discussion about a weakening economy. Something much like what is happening to the auto industry because of its extraordinary degree of oversupply (with capacity reaching 94 million vehicles worldwide and demand inflated by the boom years and easy money now deflating) playing out in a few quarters, is likely to happen across the whole economy. In a gradual pattern playing out over a few years, as consumers postpone purchases of retail goods. Already this is showing up in the inventories of electronic goods that is building up. See links. Kelly Evans in the WSJ front page on January 6, 2009, confirms the signs of a seriously frugal American consumer....

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Inflation risks are a major concern of Bernake and the Fed making interest rate cuts rather unlikely in the near future.

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Canada is joining a club of nations that are dependent on exports of raw materials to China for growth- Australia, Brazil, Malaysia and Peru. This means that Canada's central bank takes its cues from demand in China, India, Korea and other emerging economies when it sets rates. With Canada's growth at around 3.1% in 2010, Canada's central bank is expected to increase rates gradually even as the U.S. keeps its rates low.

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The Netherlands government of prime minister Mark Rutte collapsed on April 22, 2012, after the Freedom party of Geert Wilders said it would not support futher budget cuts. Mr. Wilders said: "We don't want our pensioners to bleed just to meet the dictates coming from Brussels." Government forecasts had predicted the Netherlands deficit at 4.6% of GDP in 2012, above the 3% goal set by the European Union. And negotiations that collapsed were about making $18 billion in budget cuts to help meet the deficit goal. Rutte will now lead a caretaker government till elections in September or October 2012. Credit agencies may lower the Netherlands credit ratings from AAA and this would raise Netherlands borrowing costs in coming months. The result would be to increase the deficit even further. The Netherlands government was a strong supporter of Germany to introduce strict austerity measures and budget cuts in the eurozone during the debt crisis in EU countries in 2010-2011. With the elections in France and the defeat of French president Sarkozy in the first phase of elections by Socialist candidate Francois Hollande, the austerity programs in Europe appear to be unravelling. The deeper Europe goes into a recession in 2012-2013, the more likely new measures will be needed to address competitiveness, growth, interest rates and overvalued currencies as opposed to largely fiscal and budget measures alone....

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U.S. Federal Reserve chairwoman Janet Yellen's speech at the Federal Reserve Bank of Boston conference on inequality was remarkable in the clear focus on the increase in inequality of the last three decades. Yellen calls it "the most sustained rise in inequality since the nineteenth century." Yellen also described the stark inequality between the lower half of households and those at the top- "The lower half of households by wealth held just 3 percent of wealth in 1989 and only 1 percent in 2013. To put that in perspective... the average net worth of the lower half of the distribution, representing 62 million households, was $11,000 in 2013. About one fourth of these families reported zero wealth or negative net worth, and a significant fraction of those said they were "underwater" on their home mortgages, owing more than the value of the home." Without saying this explicitly Yellen has accepted the Fed's own role in this situation under Greenspan and Bernanke. Under Bernanke Yellen was vicechairwoman. Yellen participated in many of the decisions of the Fed that kept interest rates low- hurting savers and those who could not take the risks of a volatile stock market. Yet Yellen has shown courage in stating the problem with all the facts she could muster, and making clear that Fed sees the long term unemployed as a critical driver for Fed policy....

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Robert Frank, an economist at Cornell and visiting Professor at the Stern School of Business at NYU, says this deficit increasing our debt burden is entirely different from the way in which the Bush administration increased the national debt. During the last 8 years the Bush deficits increased the national debt by almost $5 trillion. But people went for larger mansions, and consumers went on aconsumption binge, and the Bush tax cuts were skewed to help the wealthy. Now to address the economic crisis a similiar amount of about $5 trillion will be needed but it will be spent quite differently. Money spent on ropads and building infrastructure that is needed is money well spent on any dimension. Especiallyfor America's crumbling roads and bridges and highways. If postponed these would cost more or twice as much to fix. Frank's point is that alot depends on what you do with the money. At recent interest rates servicing $10 trillion in debt costs about $400 billion annually. He says thats quite manageable. Just by instituting agasoline tax of $2 agallon as the Europeans do and are not alot poorer dfor this, the US could generate $100 billion ayear. When Americans are using mass transit in the largest numbers in 50 years, it also makes sense to build better faster transportation systems between major cities, like the high speed trains in Europe....

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A locally produced ton of hot rolled coil steel in India, an industry benchmark, is up 42% in price to $675, since January 2008, when Tata unveiled the Nano. Raw materials account for a higher portion of the costs of making a car like the Nano, and account for 23% of the costs of making the Nano, according to consultants Global Insight. This means margins will be harder to preserve on the Nano. As Ratan Tata, Chairman of the Tata group of companies put it at a shareholder meeting July 24, "if we passed on all costs to the consumer, it will affect demand, and if we don't it will affect margins". Tata is accomodating suppliers like Rico Industries that make the engine blocks that use steel for increased costs of raw materials. Other costs also are going up. For new car loans the interest rates are between 14 and 16% and fuel prices are going up making the cost of operating the 50mpg Nano costlier for those riding motorcycles. Tata faces other higher costs, its managng director Ravi Kant says the project for the Nano plant in Singur is costing more. The $470 million invested so far is 18% more than it had projected in January and double the amount stated when the prject was started in 2006....

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Peter Fisher spent 15 years at the New York Fed and was Under Secretary of the Treasury for domestic finance. Interviewed by Maria Bartiromo he says the fourth quarter is going to be very hard and its going to take several quarters to get some stability and freeing up credit markets. Why did this happen. We had says Peter Fisher several years of negative interest rates the middle of this decade, and its this essentially free money that distorted the system. Capitalism he says is premised on the idea that capital is a scarce commodity rationed with a price mechanism. And everybody took advantage of this to leverage themselves too far from the clever guys on Wall Street to people in the housing and financial services industries. This in his view was the engine that led the economy so far astray. Fisher does not believe all financial institutions should be treated by fed and treasury the same way. The ones that overly leveraged with weak managements and are doing poorly ad not likely to survive should be closed. Once it is clear that the prospects for some financial institutions are dim and their survival is uncertain he thinks Fed and Treasury should not wait around for consolidation but close these as quickly as possible. He sees some banks being closed and not just commercial banks. ...

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How will deflation in the USA affect jobs in China? Not just Roubini talks about a deep recession. Kenneth Rogoff, an economist who has argued with Stiglitz's view of things during other banking and financial crises in Asia in the nineties and has been an optimist about things compared to Roubini's serious concerns, is now talking about a lost decade. Early on a lot was said of and made of the housing crisis in Sweden, where with strong government intervention and decisive action to capitalize and take stakes in banks, things were back to normal in a few years. One thing that Sweden did not face was a global slowdown and global systemic effects of credit crises worldwide so it now looks like a different situation. Here you have a series of things happening at the same time, housing price collapse, foreclosures, higher unemployment, no savings and high debt for consumers and banks foreshadowing possible collapse in consumer spending, and declines in capital spending, tight or no credit for small and larger business, global slowdown including China and India slowing exports significantly for the developed countries of USA, Europe and Japan. Interest rates near zero in the USA and Japan and trillion dollars already committed in the USA for bailouts and assistance, even before the ful force of the economic downturn has hit and this is the beginning of the downturn. ...