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If not passed by Congress, the extension of unemployment benefits expires by July 4, 2010. This would leave an estimated 1.6 million people without the average check of $309 a week. A bill when passed is expected to reduce benefits and reduce aid to states and local governments facing budget deficits.

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Mortimer Zuckerman of U.S. News and World Report magazine expresses his disappointment at the Obama administration's performance. He points to a "competency crisis" of the Obama administration and the President. On the Simpson-Bowles Commission's recommendations and President Obama's complete silence on its proposals, Zuckerman like other observers expresses strong disappointment. He says that he and other early supporters are no longer excited by the novelty of his candidacy and his presidency. Obama's single minded focus on getting re-elected is disturbing for Zuckerman.

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Reminders of the 6th of May, 2010, when sentiment swung the other way and the Dow Jones averages dropped by 900 points.

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Jeremy Grantham says he sees a 75% chance of another bubble and bust for the third time since 2000, with the stock market up 80% and speculative stocks up 140%. And he says artificially low interest rates will be responsible for this one, as it was for the other two. See Shiller, Roubini and Roach for their comments on the economic situation mid 2010.

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Brett Arends cites several factors for his skepticism about the 4th quarter 2010 US stock market rally. Cyclically adjusted price to earnings ratios that are 75% above their average value. A market value for US equities excluding financial stocks, that is within 15% of the October 2007 peak. Fed data that shows nonfinancial corporations have debt of $7.4 trillion at the end of the third quarter 2010, an increase of $250 billion in one year, and up from $5.5 trillion in 2005. This Fed data shows the debt for nonfinancial US corporations is 58% of their net worth, up from 41% five years ago. US consumers are still have the kind of debt burdens they had in 2008, with US households having reduced their debt by only about 3.5%. Arends says the leveraging is through the roof when you add up the debt that government and corporations have run up. Total debt has risen to $36 trillion, up 15% from the fall of 2007. He cites other experts who were right for the last decade who are skeptical this time- Rosenberg at Gluskin Sheff, Albert Edwards at S.G. Securities, John Hussman at Hussman Funds. The latest analysis by Jeremy Grantham at GMO is that large cap US stocks are not likely to beat inflation by much over the next 7 years. Arends has not mentioned global risk indicators such as the asset price bubbles developing in emerging markets, and the sovereign debt restructuring needed in debt burdened countries of the European Union. Analysis by the Economist in year-end 2010 points to the diverging directions of austerity in Europe, spending in the US and asset price bubbles in emerging markets, as a disturbing sign for 2011-2012. Risks in the US that Arends has not mentioned include problems in housing. Nouriel Roubini sees problems in housing in 2011. ...

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Barry Ritholtz lists the causes of the financial crisis, He says New York Mayor Bloomberg's exoneration of the financial industry is simply false- what he calls "the Big Lie"- even though Congress, regulators and the Greenspan Fed acted irresponsibly and created favorable conditions for the actions of the financial industry.

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Uchitelle of NYT says it may be years, 3-7 years, before all the idle capacity that is created gets used again. Only 68% of the country's manufacturing capacity us being utilized at this time and the numbers will keep dropping.

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"China's Superbank," by Henry Sanderson and Michael Forsythe looks at the rise of China Development Bank to provide insights into the two decade real estate boom in China, and the trillions of dollars in loans made by state owned banks to finance China's state owned industries and infrastructure development. The authors say these loans based on land owned by the state, improved with roads and other infrastructure and then sold to industry, have helped finance China's urbanization and industrial development. But it has also created problems including eviction of farmers from the land by local government authorites increasing inequality, led to misallocation of capital on bad projects, and an unsustainable model of development focussed on state owned companies. A major side effect of this is not covered in the book. This is the impact of crowding out of credit for private industry in China, with privately owned business having to pay higher rates in the underground loan market or lacking financing. A major focus of the report "China: 2030" by the World Bank and China's official think tank Development Research Center is on reversing this development to come up with a sustainable development model. The report was supported by World Bank chief Zoellick and China's new prime minister Li Keqiang. "The Great Rebalancing," by Pettis, a finance professor at Beijing University, looks at the other side of the financing of China's boom- the low interest rates on savings for China's consumer. This reduces household incomes and reduces purchasing power as the interest rates are lower than the rate of inflation. Lower value of China's currency also reduces the purchasing power for China's consumers. Estimates show the low interest rates cost China's workers and consumers somewhere in the range of 3 to 8% of GDP annually in bank deposit income. This money is funnelled through the banking system to make more loans for infrastructure and growth at the state owned companies, concentrating exraordinary level of financing in one direction. As a result the consumption share of GDP in China has actually fallen in the two decades of hyper development. This is about 34% compared to 50-55% for other Asian economies....

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During the Ozzie and Harriet era of the 1950's Americans saved 8% of their disposable income. Now thrift is becoming popular again. And one estimate is that as Americans go back to saving like this again about 10% of disposable income may be saved. This is also because of the need to pay down debt. And this means consumption will be much lower and businesses slow to add jobs.

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A shift in priorities away from focussing on high growth to lower sustainable growth was announced by China's premier Wen Jiabao at the National People's Congress, China's parliament, in March 2012. This shift will reduce investment in infrastructure, power generation and exports, which will affect the level of imports of commodities from commodity producing nations in the Middle East, Australia, Canada and Brazil. It should increase imports of software, computers, entertainment, tourism and high tech goods from the U.S. and Europe. Chinese leaders have said they would make this kind of shift for some years now but growth has consistently increased more than the target rate, and domestic consumption as a percentage of the economy has actually decreased in the last decade. Now 9-10% growth rates may be a thing of the past and the target of 7.5% set this year may be actually closer to the real figure. The Chinese leaders have belatedly realized the need to make these changes now because slowing markets in Europe -which is seeing declining growth and high unemployment- and in the U.S., make the issue impossible to avoid. Wen told the Congress: "Accelerating the transformation of the pattern of economc development... is both a long term task and our most pressing task at present... Domestically it has become more urgent but also more difficult... to alleviate the problem of unbalanced, uncoordinated and unsustainable development." This is his way of saying that its unavoidable and better to start in earnest now, and at the same time recognizing the resistance to change from the stateowned companies and the other interests who have benefitted from surging growth, and now occupy a central role in the power structure. An opinion article in the People's Daily, China's official newspaper, said: "imperfect reforms are to be preferred to a crisis caused by no reforms." The World Bank's president Zoellick is respected by the Chinese leaders. He also urged them to make changes now. The recent report of the DRC, China's planning research arm, and the World Bank, also laid out the new direction away from a focus on infrastructure to domestic consumption. The fear is sudden deceleration in the absence of policy action. The impact of this will be negative for commodities over time, leading to slower growth in Australia, Brazil, and Canada. It should boost imports from Europe and the U.S. of high tech, consumer, pharmaceutical goods over time....

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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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This WSJ article provides a detailed account of the positions of Clinton and Trump on Wall Street, the financial industry, banks, Dodd-Frank, regulatory reform, 6 weeks before the U.S. presidential election.

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The New York Attorney General Andrew Cuomo filed a civil fraud lawsuit against Ernst & Young LLP. Cuomo wrote in the complaint that "Ernst & Young substantially assisted Lehman Brothers, now bankrupt, to engage in a massive accounting fraud." The suit says Ernst & Young ignored warnigs from Lehman employees and from its own staff about the improper transactions. Lehman shifted $50 billion in assets off its balance sheet to foreign banks at critical financial reporting periods with a promise to buy back the securities at a premium price a few days later. With the cash held in the meantime, Lehman would pay down other debts, appearing to have less debt and give investors a better impression about the firm's financial condition than was really the case. Lehman and Bear Stearns were the most highly leveraged investment banks during the financial crisis of 2008. The unraveling of Lehman led to cracks in the world financial system because of interrelationships in the banking system. By taking this action the New York Attorney General's office is taking an important step to prevent the recurrence of such systemic crises from buildup of excessive leverage in the financial system....

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Proposals from the Vickers Commission on banking reforms in the UK that could be adopted in the U.S. to reduce systemic risks from proprietary trading.

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The IMF's Anoop Singh, director of the Asia-Pacific department, says the inflation in Asia and other countries is a result of wider structural economic shifts, not just a one-off result of the weather related food production declines. For this reason the response should be broader reforms to control inflation. Monetary policies alone cannot therefore do the job, more strengthening of currencies will be needed. Singh says some of the underlying demand in Asia is a result of a widening middle class, which implies the price pressures may not be temporary. The high growth rate in Asia has some good and bad aspects. The bad aspect is the quality of some of the growth and the sustainability of that kind of growth, says Singh.

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A shocking statistic. Of the 12 metropolitan areas in the US with over 15% unemployment, 10 are in California, and this is because the construction industry has taken a severe hit. It lost 74,000 jobs in the 12 months ending in June 2010. From June 2006 to June 2010, this industry in California lost 43% or about 402,000 jobs. And the construction industry is still shrinking there. One reason why the unemployment rate in California is 12.3%. The overbuilding during the boom makes it that much harder to rebuild. The construction industry has been hard hit in Los Angeles and Riverside metro areas and in Napa and Solano counties.

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Krugman coins the term weaponized Keynesians for those who say building new warplanes is a good idea because it creates jobs, but do not say the same about job creation for building bridges, and other infrastructure.

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Simon Nixon of the Econmist on the report's findings for the future of the world economy. He points to the heavy debt overhang for individuals and banks that will take years to overcome resulting in entrenched unemployment and sluggish growth, somewhat reminiscent of Japan's years of stagnation after its bubble. The entrenched unemployment he argues will permanently lower the economic potential of developed countries of US and Europe. Public debt will rise so that private debt can fall. Bank lending that is cautious will only slow any recovery for a long time. And the grim facts he presents are that about 25 million jobs will be lost in the 30 rich countries of the OECD before all this is over during the coming decade, and several million jobs probably will never come back. Auto manufacturing and manufacturing in general is an example where some jobs lost may never be regained. There is no room for complacency here.

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Austin Goolsbee says the overvalued currencies of Italy, Greece, Spain and Portugal and the lack of growth under austerity plans proposed for these countries create impossible odds for resolution of the financial problems in these countries. The German position is that profligate spending and irresponsible accounting in Greece, and structural issues in Italy ranging from entitlement spending to tax evasion, need to be resolved.

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Prof. Scott Kennedy of the Research center for Chinese Politics and Business, voices concerns of experts who think that the $585 billion stimulus and the doubling of lending this year, increase in exports by a third last month, all point to an economy that is expanding too quickly. Kennedy says that no one defies economic laws, that eventually endless growth can get get you in trouble. The concern is whether the overexpansion of credit and the size of the stimulus may have led to overreaction in stimulus spending. People's Daily newspaper of China said that China's leaders are moving much faster than leaders of developed nations. But the flip side of this is that in the rush to increase spending there may be a lot of wasteful spending resulting in many bad loans a few years from now.