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By March 2014 the U.S. stock market has seen 5 years of gains since the low reached in 2009. The Dow Jones Industrial Average (DJIA) increased 151% since March 9, 2009, when it hit a low with the global financial crisis. The Dow was at 16452 on March 7, 2014, the S&P 500 at 1878. This makes it the fifth longest running-comparable to the one after 1987- and the fifth in gains since 1900, according to Ned Davis Research. S&P 500 trades at 16 times component companies earnings for the past year, according to the FactSet, similiar to the level at which stocks peaked in 2007. Using a measure developed by Robert Shiller with a 10 year average of earnings gives a P/E ratio of 25 times earnings, compared to historical average of 16.5, and 27.5 in 2007. Shiller's measure reached its current level in 2003 before the bull market ended in 2007. The biggest support for the stock market has been Federal Reserve support by buying $3 trillion in bonds in the open market since 2008. This support is gradually being reduced as the economy recovers....

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Renewed warnings about the bubble in housing prices in China. Earlier warnings came from Krugman, Lardy, John Taylor. This one comes from Nomura economists Zhiwei Zhang and Wendy Chen. Could the government's action to curb rising housing prices not be adequate leading to a financial crisis as early as 2014, is the question posed by Zhang and Chen. They cite the rise of housing prices by 84% from 2001 to 2006, before the financial crisis of 2008 in the U.S., using the Case-Shiller housing price index. One problem- the government statistics may have underestimated the extent of the bubble. China's official index shows housing prices rising 113% in major cities from 2004 to 2012. Zhang and Chen say this is much smaller than the actual rise because it includes older, lower quality housing property. They cite an academic paper that adjusts for this and finds prices jumping by 250% in the period 2004 to 2009. Another problem is that China's housing prices growth slows after government action but then resumes the growth, leaving the risk exposure at the high level as before. Because the local governments are tied up in the housing bubble the problem would hit the banking system. About 14.1% of the outstanding bank loans are to local government financing vehicles, and 6.2% to property developers, according to Nomura economists. The declining potential growth rate in China means there is less room for bad loans to be absorbed by hyper growth levels than in the past. Errors in policy can magnify the risk including loosening monetary policy and exacerbating the bubble at the wrong time. In the absence of errors the risks still remain requiring the sale of public assets to bail out local governments and banks. The argument made by Krugman and other economists has been that China is not immune to the risks of a housing bubble going bad, in any way less than Sweden, the U.S., Spain and other countries, requiring bailouts of banks....

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Sudeep Jain provides a discussion of the policy tools India's new central bank chief, Raghuram Rajan, could use to stabilize the rupee. This includes, intervention in financial markets, sovereign bond issue, and further control of liquidity measures. The rupee stands at 61.80 to the U.S. dollar on August 6, 2013, after depreciating in 2012-2013.

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The G-20 statement for the meeting in Washington D.C. in April 2013, says: "Japan's recent policy actions are intended to stop deflation and support domestic demand." Bank of Japan Governor Haruhiko Kuroda's response was that this will help the BOJ implement its monetary expansion program in an orderly way. Kuroda said: "Now that we have obtained the support of the international community, we will be able to implement our program with confidence." These moves come with a call for Europe to proceed with banking union and giving more time for austerity programs to reduce the slowdown in Europe. This happens as fears emerged of a global slowdown in April 2013.

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Applebaum talks to two researchers at the University of Chicago and Princeton, Prof. Sufi and Prof. Mian, on the record of U.S. president Obama and Fed chairman Bernanke in helping homeowners facing foreclosure and underwater borrowers, comparing that record with their record in helping the banks. The issue is relevant as the policy and handling of homeowners had to be part of an overall effective plan for recovery in the U.S. economy, because ultimately without the U.S. consumer any recovery would be weak in the long run- a situation the U.S. faces in early 2014. The response to the issue of irresponsible homeowners borrowing beyond the limit without an equally robust response to irresponsible bank management that allowed wildly excessive leveraging of assets, and successful aggressive lobbying by banks in a shortsighted policy of going through with a wave of foreclosures; besides creating questions of fairness and equitable handling of the problem, also had major ramifications for the future of the U.S. and global economic growth. Here Christina Romer and other administration advisors say Bernanke was right in tackling the problem from the perspective of the banks needing to be recapitalized. Thoughtful advisors looking at the entire problem, Martin Feldstein and Sheila Bair strongly pushed for providing the same help to homeowners without getting caught up in the issue of who was responsible home buyers or the banks, and looking at the interests of the U.S. economy and the U.S. people. Proposals by Feldstein and Bair were equally robust in helping banks as they were in helping homeowners, only the banks understood their interests narrowly and had more access to policymakers in the Bush, as well as the Obama administration, Paulson as well as Geithner. This leaves us with the ultimate irony of the Obama administration pushing for the minimum wage, even to the point of electoral posture, when lasting damage had been inflicted on homeowners from the weaker portions of America's middle class by a policy that went against what two respected financial and economic experts from the Reagan period, Sheila and Bair had strongly advocated. See links and groups on Feldstein and Bair. Applebaum has followed most aspects of this problem closely and continues to provide exceptional reporting including the piece on the thinking of new Fed chairman, Janet Yellen. Private enterprise rules that require management at banks just as for other companies to take responsibility for failures, and be replaced with new management, was largely avoided leading to a fundamental failure in how a free market economy such as the U.S. and western European economies are supposed to function. Rules aggressively pushed by Geithner's mentor Treasury Secretary Rubin for a vigorous cleanup at banks in South Korea during a similiar situation in 1997, were not followed in any way here, also setting wrong precedents for the long run. ...

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Macroprudential policies of central banks in S. Korea, Indonesia, China, Canada, and other countries, as concerns grow about a housing and credit bubble.

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The northeastern region of Brazil, the poorest region of Brazil, has benefitted from the economic expansion in Brazil. The region's GDP went up by 4.2% a year for the last ten years compared to 3.6% for Brazil. Bolsa Familia, President Lula's anti-poverty programme has benefitted the northeast, but the Getulio Vargas research institute shows three quarters of growth coming from earnings and expansion of export based agriculture in soyabeans and other products and from mining export industries. Projects in the northeast include development of the port and industrial area around Suape. A petrochemical plant, a shipyard and a Petrobras refinery, are under construction. A new railway will link Suape to the interior. Much of the development is for export industries in soyabeans and iron ore, and for the rail and port infrastructure that supports these exports to China. As a result the development looks similiar to what is happening in Australia with the huge expansion in rail and port infrastructure in that country to support iron ore and other mining exports to China. Any slow down in China will affect Brazil as the IMF has recently warned, because of an overdependence on commodity exports to China. Alexandre Rands of local Datametrica consultancy points to this when he says that infrastructure booms while helpful are not enough to sustain development. Big firms train the workers they need which is how Brazilian companies cope with a weak educational system. Schools in the northeast are however not getting the financial support to improve education, a situation that affects Brazil as a whole, but is even more evident in the northeast....

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Easwar Prasad, Cornell University economist, and a former head of the IMF's China division, says the new report by the World Bank and the Development Reform Commission (DRC), is part of an effort by government officials in China to push the agenda for change forward during the transition to a new leadership. This includes Premier Wen. There is pushback from large state enterprises. The DRC and the World Bank had called for a change from the current situation to allow more private sector involvement in the economy, which means restricting the growth of the large state owned companies and letting the private sector operate in more parts of the economy. The alternative is to see growth slowing quickly and -some economists- say suddenly without warning. The role of Zhu Rongji, a former prime minister during the period Jiang Zemin was president, in pushing for changes appropriate to the period, is also cited. The last decade under prime minister Wen Biao is seen as one in which China relentlessly pursued its currrent export led model of development with large state run companies and state run banks dominating the economy. This has made change even harder to achieve because of the pushback to preserve the status quo....

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India is an attractive place for foreign investors with the country moving up 23 places in the ease of doing business rankings of the World Bank. Growth is faster than China since 2015, and GDP is expected to double to $5 trillion by 2030, according to government think tank NITI Aayog. Corporate deal making from foreign investors exceeds that in China. Mergers and acquisitions targeting Indian companies reaching a total of $93.7 billion in 2018, up 52% from last year, according to Dealogic. Overseas purchases were $39.5 billion for India in 2018 compared to $32.8 billion for China. In comparison to China where trade tensions are increasing, India under the Modi government has improved the ease of doing business- implementing a new bankruptcy code, easing foreign direct investment rules, introduced a nationwide goods and services tax to replace a hodge podge of taxes in different states. In the consumer sector Unilever NV made purchase of a malted drink brand Horlicks from GlaxoSmithKline PLC as part of a $3.75 billion deal. Softbank led a $1 billion investment in OYO Hotels. In infrastructure Tata Steel made a $8.3 billion acquisition of steelmaker Bhushan Steel. Reliance Jio's aggressive push in mobile with low prices is leaving the telecom industry ripe for mergers and consolidation- Bharti Infratel acquired Indus Towers for $6.5 billion. Closely held family companies are also selling out their controlling stakes. ...

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The ECB stands ready to act with the unanimous support of its 25 member governing policy, says Mario Draghi, president of the ECB. Draghi said that "if oil feeds into other prices, that could generate exactly what we want to avoid, namely a spiralling downward phenomenon" for wages and prices. Mark Carney of the Bank of England, says he will see "how things evolve." The U.S. Federal Reserve might slow planned rate increases in 2016, if inflation remains well below the target of 2%, and conditions indicate adverse effect on the economy.

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U.S. Fed Governor Stein says he is is concerned about the costs of the accomodative stance taken by the Fed under Bernanke, even though he understands the reasons for the accomodative policies.

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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 Labor Department reports that there is no U.S. productivity growth in the 4th quarter of 2014 over the prior year. U.S. productivity growth is about 1.3% for the period since 2009, showing a weak expansion. Job gains of 295,000 in February 2015 show an improving jobs picture, yet wage gains are tepid. This is partly due to slack in the labor market not reflected in the official unemployment rate of 5.5% for Feb. 2015, with a large number of part time workers who do not have full time work. The low productivity growth is another reason for low wage gains in this economic recovery. Economic growth is also weak with economists estimating GDP growth for the 1st quarter 2015 at 1.5% annualized. GDP growth is in the 2-2.5% growth range since 2009. Hourly wages are up less than 2% since 2009, with hourly wage growth in Feb. 2015 at 2% over the prior year. Weak business investment is part of the reason for the sluggish economic growth. Macroeconomic Advisors estimates the capital investment for equipment software and buildings is seeing growth of only 0.3% in the last decade, much lower than in the last forty years. With most of the gains from the internet technology advances already made there is less prospect of a sudden increase in productivity....

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The NASDAQ index reached 5000 by April 2015, a level reached in the stock market boom in 2000. Yet investment strategists who were wary of the stock market in the period before the 2000-2002 collapse of the market see this market differently. The NASDAQ itself is not what it was in 2000, with the 2015 NASDAQ component stocks being different for the most part, and the healthcare and other sectors better represented in the index. Only three of the stocks in the top ten in 2000 are in the top ten today, including Microsoft. The S&P 500 trades in April 2015 at 18.5 times its company earnings for the past 12 months, compared to an historical average of 15.5, according to research firm Bespoke. A big part of the difference today is the investment climate of low inflation, which gives the U.S. Federal Reserve flexibility in raising rates. Low rates make bonds with lower yields less attractive, and increase the present value of future earnings. The yield of the 10 year U.S. Treasury was 1.917% on April 25, 2015. In April 2000 it was 6%, and in mid 2007 it was 5.3% before the financial crisis in the two periods. James Paulsen, chief investment strategist at Wells Capital Management oversees $347 billion in fund investments. He also was wary of the U.S. stock market in 1999, yet he does not see the similiar kind of risks today, and sees a long term bullish trend. The scenario he envisages is more of a pause or temporary decline. Paulsen has shifted money to European markets, as U.S. stocks are becoming more expensive relative to their European counterparts, a strategy that is being followed by other money managers since 2014. Higher price volatility is seen in the markets in 2015, with the S&P 500 up 2.9% for the first four months of 2015, and the Dow up 1.4%. ...

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Koichi Hamada, a former professor of economcs at Yale University, is one of prime minister Abe's advisors for the policy called Abenomics. He says the increase in the consumption tax was never part of Abenomics. It was the legacy of the previous Democratic Party of Japan's policies and of prime minister Noda, who pushed for it in the last 2 years of his administration. Nikkei polls in 2011 showed 53% of the public opposed to the doubling of the consumption tax to 10% by 2015 proposed by Noda and passed in 2012. Ichiro Ozawa's group of legislators left the DPJ over this issue. The real force behind the push to double the tax was the Finance Ministry, which warned the Abe government that not increasing the tax would make Japan look fiscally irresponsible. The Finance Ministry appears to have lost sense of the timing and fiscal hawks in the LDP party had gone along with it. The deteriorating global economy in the third quarter has hurt Japanese exports, and the lack of wage increases coupled with the increase in the consumption tax to 8% from 5% made Japanese feel poorer, leading to conditions that exacerbated the situation. Recognizing this Yamamoto says Abe has called the snap election in Dec. 2014, after postponing the second increase in the consumption tax to 10% in 2015 which the Noda legislation set to the future date of 2017. He says Abe had to have the guts to take on the Finance Ministry for Abenomics to work....

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The U.S. Fed FOMC's decision to continue tapering monthly bond purchases by $10 billion in Jan 2014.

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Tom Keene of Blomberg BusinessWeek talks to a panel of experts about the future prospects for the US and the global economy. The discussion was spurred by Carmen Reinhart's paper at the central banker's Jackson Hole, Wyoming, conference. This paper forecasts high unemployment, low housing prices and very low growth in the US upto 2017. Shiller, Calomiris, Orszag, Kaufman and Bill Gross are part of this panel. Shiller's to do list main item is to get help to local and state governments by restoring general revenue sharing arrangements. Gross would focus on jobs that can hold up in a competitive economy, and put back some of the production that is taking place in the developing countries back into the developed countries, as part of a rebalancing; through a currency realignment. Kaufman would like to see a capital expenditure program by the US government, including infrastructure and education. Calomiris would like to see a setup of a new Republican Congresss to set the stage for post 2012 efforts. Calomiris favors cutting entitlements, cutting payroll taxes, but is not clear how this would help lower the deficit. Orszag points to feedback from business leaders suggesting a lowering of payroll taxes will not spur hiring, as the real reason for not hiring was low 1-2 % expected growth. Shiller, Kaufman and Gross see government efforts as realistically needed in the current situation....

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Krugman points out the gains on three fronts evident from the Census Bureau report of 5.2% gain in median income of households in the U.S. He says the first is the growth in incomes of ordinary working class and middle class families, second the large decline in the poverty rate, and third the further rise in insurance coverage in 2015 for people without health insurance. He points to the steady efforts of the Obama administration to improve lives of ordinary families as working based on the Census report though results have taken time, and could have been better. The Stimulus, says Krugman could have been larger following the blow of the 2009 financial crisis and increased unemployment at the time. Janet Yellen at the inequality conference of the Boston Fed in 2014 pointed out the problems of 62 million households having net worth of about $10,000, and why this was running against the American idea of a better life for all Americans. In that sense the Census report is a movement in the right direction but a lot remains to be done.   ...

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Pearlstein lists the names of insider investors for Facebook- Peter Theiel and Founders Fund, Jim Breyer and Accel Partners, Greylock Partners, Microsoft, Li-Ka-shing, Bono and Elevation Partners, Alisher Usmanov and DSL. For full disclosure he states Washington Post Co. chairman, Donald Graham, is on the board of Directors of Facebook. Venture capitalists are leveraging their position in Facebook to get new investors, share prices of companies involved are up. Goldman benefits by the $60 millon for placing client money in Facebook, a cut of 5% from any profit they earn, and the hundreds of millions of dollars from being a lead underwriter for Facebook's IPO. What all this does is create the conditions for a bubble for internet stocks similiar to the bubble in late 1990's, with insiders reaping most of the benefits and the public taking on most of the risk as the internet stock loses its dominant position with the entry of new technologies and competitors in the market or a change in consumer preferences. As was evident in the earlier bubble this is not hard to create. Some of these bubbles are in fact already taking place for Chinese internet stocks on US stock exchanges, with investigation staking place into accounting practices of some of these companies. With the financial electronic media and analysts doing their part in the hype and sell such a bubble is underway, just when the debt burdened US middle class can ill-afford any losses that may take place. ...

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The lack of economic opportunities for an increasingly urbanized African younger generation is a major challenge. The median age of 19 makes Africa the world's youngest continent. Megacities are growing up in places such as Lagos and Kinshasha as millions leave subsistence farming to go to cities. Unlike Asia and Latin American countries men and women are coming to shantytowns in cities at a time when Africa is much poorer for a similar level of urbanization that Asian and Latin American nations reached decades earlier. In 1993 this WSJ analysis and graphs show the Asian emerging economies and sub Saharan Africa had similar GDP per capita of $2415, by 2019 this was $4000 for Africa and $12,000 for Asian emerging economies. Latin America was at $10,000 in 1993 and in 2019 was at about $15,000. The gap widened considerably between Asia and African countries. Asian emerging economies increased GDP to 5 time from the same starting point as Africa in 1993, Africa doubled GDP over the period of 25 years to 2019. Latin America started from a much higher point and increased GDP by only 50% over 25 years. Asian economies that performed better over this period did better because of stable even entrenched governments such as in Singapore with Le Kuan Yew and in China with stable successive governments under CPC leadership of prime minister Deng. The difference in Asia was a commitment across all classes and groups to development, a sense of development as a way to make up for the years lost under colonialism of foreign powers in the eighteenth and nineteenth centuries. A sense of correcting historical injustice and wrongs. This is a missing ingredient in the processes unfolding in Latin America and Africa in the last 25 years. ...