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The warning light is again on for Greece in the beginning of 2012, as the rapidly deteriorating economy makes a 50% loss by private creditors insufficient to help it meet repayment or refinancing of bonds coming due in 2012. Additional funds will be needed from EU countries unwilling to do this. 14.5 billion euros in Greek bonds come due on March 20, 2012. Greece also faces a public increasingly resistant to austerity cuts. A vountary exchage of existing Greek bonds by private creditors for new bonds at 50% face value and maturing over a longer period will be done under English law. This will be harder to change in the future. Most of the existing bonds were issued under Greek law which can be altered by Greece's parliament.

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Senators opposed to renomination of Bernanke to Fed chairman position include Boxer, Feingold, Sanders, and a non-commital Reid. Growing crtiticism of the Fed and the cozy relationship between Bernanke, Geithner, Summers, and the bankers. The role of Bernanke in the Greenspan years of low interest rates and high liquidity both in Congress and in the country as the national mood changes.

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Barney Frank, of the Dodd-Frank Wall Street Reform and Consumer Protection Act, is interviewed by the New York Times one year after the passage of the legislation. He says we did not punt anything, it was because the legislators couldn't get everything right that they set up the provision for extensive rule making. He would rather forget financial matters as they are not his strong point, he has learnt more about repos and derivatives than he ever wanted. Critics have pointed to the extensive rule making delegated to regulators in Dodd Frank as a major weakness. It makes Dodd-Frank as effective as the regulators want it to be, something that goes back to an earlier period before 2008 when lack of regulatory discipline led to the financial crisis. He gives the regulatory agencies CFTC and the S.E.C. good grades for writing some of the rules because of the difficult conditions they face. His main fear is the stalling by Republicans in Congress and efforts to weaken the law by crimping resources for the agencies. And he fears the Republicans with support from the banking industry see the 2012 presidential elections as an opportunity to reverse the legislation....

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The influence of business executives who helped shape president Trump's views on Mexico, China, Export Import Bank, and other issues is covered by Stokols and Bender of WSJ. On Mexico the departure of Mike Flynn helped moderate views, Wilbur Ross, the Commerce Secretary also provided a moderating influence. The plans are now to change NAFTA but not entirely redo the agreement. On the Export Import Bank the views of Boeing CEO Muilenburg, who explained to Trump why the Bank supported U.S. exports and how other countries had similar banks, led to the president filling the bank vacancies. On China the influence of NEC head, Gary Cohn, former president of Goldman Sachs, and other business executives, led to a less confrontational position. The president once called NATO obsolete during the campaign but he met this week with NATO secretary general Stoltenberg this week and expressed strong support for NATO after rising tensions with Russia.

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Former U.S. Secretary of Defense, William Cohen, on what the automatic spending cuts from the sequester- after the failure of the Supercommittee in Congress to reach agreement- will mean for the Defense Department and defense preparedness.

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Federal Reserve chairman Bernanke's move in January 2012 to announce detailed projections for interest rates for each of the 17 Fed Governors participating in policy meetings, is an effort to show that he operates by consensus. Names of the Fed Governors are not stated.This is a change from the Greenspan years at the Fed. Hilsenrath points to the research done by Alan Blinder of Princeton University, former Fed vice chairman, which shows group consensus based action works bettter. Another reason for this is the Fed's damaged credibility after the Greenspan years and the financial crisis of 2008, when the Fed operated under one dominant figure. An additional step taken by Bernanke is to move from the ad hoc type of policy decisions of the past decade to a longer term plan for unemployment and inflation goals. The Fed has set a 2% goal for inflation with some flexibility to reduce unemployment if it is too high. This gives businesses more information to plan ahead and improves Fed credibility....

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European Commissioner Michael Barnier calls for banning credit ratings on countries receiving financial aid. This comes after Moody's strongly downgraded Portugal's rating to Ba2 in July 2011.The downgrade was more severe than expected and comes right after the Greek parlaiment passed austerity measures in Greece. Moody's Ba2 rating suggests a 5 year default probability of 8.1% for Portugal, according to Deutsche Bank.

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Merkel expresses her support for Portugal during a meeting with prime minister Pedro Passos Coelho of Portugal in Lisbon on Nov. 11, 2012. In a news conference which was live on German television Merkel said: " I feel a great sense of determination here in Portugal to overcome this difficult phase." Recognizing the cost of austerity measures and spending cuts, the 16% unemployment rate, Merkel added: " I know that its very hard for some people. Unemployment is high, especially among young people. Consequently, Germany in particular wants to support Portugal through professional training for young people." The German chancellor is travelling with a German business delegation which is meeting with Portuguese executives to determine areas for German cooperation with Portugal to generate growth in the economy.

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India's demographics show one startling fact. By 2020, the average age of Indians will be 29. This is happening just as the rest of the world is aging very fast. In the next 15 years India will have 130 million more people in the 20 to 49 age group. This compares with a shrinking in population of 100 million in that age group in developed countries and China, according to the U.N. Population Division. The problem facing India is malnutrition that runs as high as 43% for children with half the mothers anemic, weak educational system at the primary and secondary school levels especially in the government run schools, lack of good governance in the most populated states such as Uttar Pradesh in the Ganges plains which has 200 million people, the consequent overburdening of cities which have no plans to manage the migration of the rural poor to the cities. India has to find ways to fill the huge gaps in getting better nutrition, education, dignity and sense of opportunity, and work for the growing numbers....

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Three regional Fed bank presidents have expressed skepticism of the Fed plan to buy medium to long term Treasury bonds- they are Kocherlakota of Minneapolis Fed, Richard Fisher of the Dallas Fed, and Plosser of the Philadelphia Fed. There are 12 regional Fed banks, and five voting seats on the Federal Open Market Committee rotate for the 12 Fed bank presidents. Opposition to Bernanke will increase as these presidents take voting positions in the Fed Open Market Committee. The Wall Street Journal reports that there is deep skepticism about Bernanke's plan among some of his colleagues. Thomas Hoenig of the Kansas City Fed says that more expansive monetary policy was "a bargain with the devil." The Fed's plan is to take a measured approach with U.S. Treasury bond purchases with maturities between 2 and 10 years. A WSJ survey of private sector economists in October 2010 found that the Fed is expected to purchase about $250 billion of Treasury bonds each quarter, and continue till mid 2011, amounting to $750 billion in all. By pushing down Treasury yields the Fed hopes to have an impact on the federal funds rate of one-half to three-quarter percentage point impact for $500 billon of bond purchases, says Dudley, President of the New York Fed. Treasury yields on the 10 year note have fallen from 4% in April to 2.6% partly in anticipation of Fed's action. The previous Fed intervention in March 2009 was a program to buy $1.75 trillion of Treasury and mortgage bonds over 6-9 months. This time the approach will be careful and measured based on results, according to the Fed. Alan Blinder, former vice chairman of the Fed, says this is the tool less preferred and of unknown effectiveness, as fiscal tools would be the preferred choice. The deficit concerns, he says, have restricted the preferred option....

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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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Sheila Bair says she fears the next crisis will start in Washington. Bair points to the need for urgent action along the lines recommended by the Bowles-Simpson Deficit Commission. Areas identified by Bowles-Simpson should be tackled as early as possible, she says - tax subsidies for housing and health care that lead to misallocation of resources, defense spending, special-interest provisions. She points out that the increase in the deficit is a result of the unwillingness of governments over the last two decades to make the hard choices necessary to control the structural deficit. Total federal debt doubled in the last 7 years, to almost $14 trillion, or about $100,000 for every American household. Bair, as Chairman of the FDIC, played a critical role in the efforts to control the US financial crisis of 2008-2009. Relentless federal borrowing she says, undermines the confidence private investors have in US government obligations. The cost for bond investors and others to purchase insurance against a default by the US governmet went up from 2 basis points in January 2007 to 100 basis points in early 2009, and is now at 41 basis points. With 70% of US Treasury obligations held by private investors scheduled to mature in 5 years, a decline in investor confidence would lead to higher government and private borrowing costs. She writes this just as the debt crisis in Ireland is taking place, following the one in Greece, and contagion to Portugal and Spain is feared. Bair fears a similar loss of confidence in US public debt. High and volatile interest rates could lead to losses for financial institutions holding Treasury debt and raise funding costs for depository institutions....

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Charles Scwab points out what is really hurting seniors. In Feb 2006 the yield on a 1 year CD was 5.4%, with the fed funds target rate at 4.5%. In 2010 the 1 year CD yields only 1.3%. The $7.5 trillion in these low interest accounts are earning so little hurting seniors.

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David Wessel says there are three hypotheses about the slow recovery with growth of 1.9% in the first quarter of 2011, estimated growth of 1.4-1.5% for the second quarter. The first, is that this is transitory, with gas prices, Japan's tsunami disrupting supply chians, and Europe's poor handling of the financial crisis. This he scores as wishful thinking. The second, that the stimulus was too small, the need for a second stimulus, or the related hypothesis of the large uncertainty hanging over business, including the debt ceiling negotiations, deficit etc. This he scores as more convincing, but one is not sure different policies would have led to a different situation. The third hypothesis is that the underlying diagnosis of the economy itself was hopeful but flawed and wrong. Hope about the housing market- which has been proved wrong. The same for exports, or consumer spending. Wessel cites Ken Rogoff and Carmen Reinhardt's new book on the afterperiod of financial crises and asset bubbles, with data going back to many historical periods showing that the periods following crises are difficult having protracted periods of slow or marginal economic growth....

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This editorial in the WSJ tells readers not to confuse the spirit of a pro-growth initiative in the CEO statement of Oct. 2012 with a simple tax increase. The CEO's are doing this as a part of a larger effort for a strong recovery in the U.S. economy and not simply to increase taxes. For the first time CEO's are backing tax increases to break the influence of what the Journal calls Republican deadenders who flatly oppose any tax increases period leading to unacceptable deadlock and uncertainty that prevents business from investing and hiring. This is part of a broader set of tax reforms to lower rates overall, reduce tax expenditures and support the Simpson-Bowles commission recommendations framework to reduce the deficit.

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The yuan has risen 14.5% against the yuan in the last 4 months, according to the Chinese Commerce ministry. Loosening the Chinese currency's peg to the dollar will increase the value of the renminbi even further. And with further declines in the euro expected this would seriously affect Chinese exporters to Europe. This also makes European goods more competitive than American goods in the Chinese market putting the Obama's administration's goal of doubling exports further at risk. The Shanghai stock index declined by 5.1% on Monday May 17, 2010, reflecting these concerns. The Chinese government continues to intervene in currency markets and the renminbi is now at 6.827 renminbi to the dollar.

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Chile's experience in Latin America stands out for the painful experience of the dictatorship years and the mismanagement of the economy by the government preceding it. The governments of the last 20 years of the Concertacion have studied the mistakes of these years and corrected them to aremarkable degree, like no other country in Latin America. The new politicians decided that the economy had to be managed so that inflation was under control and these Concertacion administrations produced budget surpluses in all but 4 years says Finance Minister Velasco. Velasco himself was 13 years old when the dictatorship of Augusto Pinochet was set up, and his father a law professor had to leave the country for criticizing human rights abuses. He studied economics at Columbia University, and his principal focus there was he says, " to understand how did this happen to Chile and how do we make sure it will nhot happen again." His finding was that runaway inflation had created so much unrest among the people that coup plots could take place, and that political stability could not be maintained without good management of the economy. It also meant that Chile must avoid extremes, try to take amoderate position, which meant preserving the free market reforms that had taken place, and introducing policy measures, projects and investment which helped to bring up the vast majority of the people including the least well off of society. Velasco also studied the history of Latin American economies with their boom and bust cycle, the situation in countries especially Argentina and sometimes in Brazil and other countries since the fifties. He found as he says that when " a country seems very creditworthy, everyone wants to lend to you, capital flows in and consumption booms." At some point excessive amounts of capital flow in which cannot be absorbed and is wasted in unproductive ways, which becomes adebt burden as the bust part of the cycle takes hold. So Chile has been careful to control speculative inflows of capital. But Velaco went further. In 2006 he left a Professorship at Harvard University to become finance minister of Chile under President Ms. Bachelet. Copper prices were surging and Velasco insisted on caution. In 2006 he pushed through a law requiring the annual budget to be based on an independedt committtee's estimate of the average price of copper in the next 10 years. Any copper income above the budgeted price goes into a savings fund maintained outside the country. In 2007 the copper price used in the calculation was $1.21 a pound, while the market price was $3.23 a pound. The profits $6 billion for 2007 went into the rainy day fund, which is invested conservatively in government bonds or money market instruments denominated in dollars, euros and yen. This fund is now at$20 billion. What is remarkable for Velasco is the way this was executed. The price used was conservative, the political pressures from unions and students and other groups was resisted effectively, and the whole exercize was carried out to successful conclusion even as popular support for the government dropped. When the crisi hit in December 2007 copper prices plummeted. Velasco announced a stimulus package, getting the $4 billion stimulus package through both Houses of Congress in January 2009. Chile expects only adrop of 0.5% in GDP in 2009 year over year. $500 million was given to stae owned bank BancoEstado, which reduced consumer lending rates by half. The package offers subsidies for businesses to hire younger workers, $700 million for large infrastructure program designed to create 60,000 jobs in road paving, airport upgrades and housing construction. And 1.7 million families, the poorest 40% of the population received cash stipends from the government equivalent to $70, with another stipend due in August....

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Actually some of this is a healthy development as more nations and people have a stake in the world economy. Take the Brazil situation for example . Clearly the Brazilian people are more favorable to globalization and its benefits than they were a decade ago at the height of the Asian crisis and the contagion effect on Brazil. Actually the advantages of free trade and a global trading system that benefits Brazil as well as China and India and other countries that buy its commodities such as iron ore is more now than ever because these nationas are benefitting from this trade. Because of the high prices of commodities and the agricultural products of Brazil, it has a currrent account surplus and its currency is strengthening. Instead of having to go to the IMF for assistance Brazil has large foreign exchange reserves that support its currency and which help it push up its investments as a share of GDP from 19% to closer to 25%, which should enable it to sustain about 5% growth year after year., according to Sergio Vale of MB Associados. A strong real, lower interest rates, and consumer credit have boosted the purchasing power of the middle class and the antipoverty programs of the Lula government have helped the poorer classes have a stake in the development. According to a recent Observador/Ipsos survey 23 million Brazilians have left social classes D and E and joined class C whose distinctive markings are a rented apartment, a car and some new gadgets. Actually quite to the contrary of the impression created by this article Brazil according to a former central bank governor is now showing a new enthusiasm for this kind of development which encompasses free trade and markets, a feeling that the stockmarket is not a casino and being part of the world economy is a good thing. The big discoveries of oil at Tupi and Carioca-Sugar Loaf in Atlantic offshore waters by Petrobras even though they are in miles deep waters and require special expertise must only have reinforced this mood. The danger to Brazil's enthusiasm comes not from nationalism of different countries trying to find better ways of meeting the aspirations of their people but from the risks in a global slowdown that started with the US subprime and mortgage crisis, the resulting credit tightening, and fall in consumption thats expected after years of overspending by the American consumer. Its now upto these individual countries, like Brazil, China, India and Russia, Japan as well as Germany France and other countries that are not directly part of the housing bubble and subprime and mortgage securitization mess affecting the USA, and the UK and Ireland and Spain to a lesser extent, to find ways of maintaining more modest but still substantial growth to meet the growing aspirations of people in these countries. In this sense the policy errors and regulatory errors made during this last decade in the US will actually have hurt the world economy and markets in a serious manner, and it is this that has now to be managed in a better way by these countries with the close cooperation between them and the USA. The situation in Brazil is repeated in the experience of India, China and Russia where for the first time there is enthusiasm for being part of the world economy. In the light of this development there is more reason for hope and more need for careful navigation mechanisms for these and other countries to weather the difficulties from a global slowdown and still sustain development that itself could help the USA work its way out of the current crisis through its exports....