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The risks facing China of slow growth and a bubble economy as the new leadership of Xi Jinping takes over in 2012. The export model for the economy is coming to the end of its run and the new leaders have to come up with a new plan for the future. At the same time they face the interests of state owned companies, banks and local governments interested in maintaining the status quo.

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China's GDP growth for the 4th quarter of 2012 was 7.9% over prior year, increasing from 7.4% in the third quarter of 2012, according to the National Bureau of Statistics. GDP growth for 2012 was 7.8%, down from 9.3% in 2011. Growth is stabilizing at 8% which shows China is managing the economy, slowing the growth rate with a smaller stimulus planned in 2013, and working on sustainable growth for the longer term. This is a significant positive as a new leadership takes over in China and sets priorities for stable growth, and improvements in housing and health care.

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A Tax Policy Center study (joint project of the Brookings Institution and the Urban Insitute) shows $157 billion would be generated in the first year from an increase in taxes on the top 1% of income earners in the U.S., about 1.13 million households earning average $2.1 million, by increasing the federal tax rate from current 33.4% for this group to 40%. This could pay for a program to provide tution free education in America's colleges and universities. Even increasing the federal tax to 40% on the 115,000 households earning over $9.4 million on average, the top 0.1% of American households, would generate $55 billion in the first year, enough to pay for the $47 billion cost of tution free education at all of America's public colleges and universities, according to the Tax Policy Center. Economists including Stiglitz and others, point to significant impact of revenue generated from such a tax when applied to improving educational opportunity for the middle class and lower income groups. Education is a great leveler of income disparities as seen in the U.S. after World War II. During recent decades the highest income groups weren major beneficiaries of tax and economic policy, at the very time the middle class and factory workers were hit hard by global competition which lowered wages and exported jobs. The interest rate policies of the Fed after boom bust cycles also favored large investors in equity markets over smaller income earners with savings account deposits, whose savings experienced little growth under interest rates close to zero. ...

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There is a mixed picture behind the drop in investment in new oil exploration. The IEA estimates that overall investment will be down 15-20% in 2009. The number of drilling rigs in use globally fell 32% in the year to April 2009, to 2055, according to Baker-Hughes, an oilfield services firm. In America the number of rigs in use is down by 50%, and OPEC countries are cancelling 35 big projects, according to the OPEC secretary general, Salem Al-Badri. Cambridge Energy Associates estimates that 5.5 million barrels a day of capacity additions may not take place in the next couple of years, which is a third of expected net increase by 2014. Examine this a bit more closely and you find that the oil majors despite lack of access to oil in inhospitable terrain or foreign countries, are still holding up well in investment. Exxon increased capital spending by 5% in the 1st quarter 2009, and Shell and Chevron plan to invest the same in 2009 as in 2008, $31 billion and $23 billion. BP plans to go from $21 billion to $20 billion. Canadian Tar Sands investments are being reevaluated in the light of prices, and smaller companies like Devon Energy are cutting back, for Devon from $9 billion in 2008 to $4 billion in 2009. From the national oil companies the investments are holding up in Saudi Arabia, whereas they are faltering in Russia and cash strapped Venezuela. Saudi Aramco recently completed a 5 year project increasing capacity from 10m b/d to 12.5 b/d at cost of $70 billion. And another $60 billion is set aside for more investments which will be less vigorously pursued as Saudis have 4.5m b/d of idle capacity after production cutbacks by OPEC. Petrobras plans to increase its investment by 55% to $174 billion in the next 5 years in offshore discoveries challenged by deep waters and thick layers of salt. The oilfield services companies like Schlumberger are cutting back, with Schlumberger cutting investment in 2009 by 13% to $2.6 billion and shedding 5000 jobs. Baker Hughes shed 3000 jobs. Mature fields are also receiving less investment, so that the drop from mature fields will be 9.4% according to IEA instead of 7.7% projected earlier with larger investments. The picture described above shows investments by the Saudis, the majors, oil field services firms, investments in recovery improvements in mature fields, not in a precipitious decline. The picture is of cautious and careful investment and some pullbacks as the economies of the US suffered decline in GDP of 6% in the 1st quarter 2009 over prior year and the German and Japanese economies suffered decline of 15-16%. Even the most optimistic forecasts for China do not go above 8% for 2009. In the light of these growth estimates the moderate drop in investments in new oil exploration may match the moderation in growth in Asia and the drop in growth in the USA and Europe and Japan. The forecasts of steeply higher oil prices or spikes like those in 2007-2008 are based on the notion of a quick economic recovery. See the links to economic recovery on this. These links suggest that the current surge may not last as the basics for a recovery are weak. In the US foreclosures, toxic assets, housing, consumption and savings, and unemployment all indicate a weak economy for several years down the road. And it is this weakness that the oil investment exploration budgets may be responding to in amoderated manner. The latest sign of this weakness is the spread of foreclosures to prime borrowers with job losses, link NYT May 24, 2009. The Saudi king thinks that $75 is a fair price for oil. Current prices have taken oil to $60 a barrel, even as inventories remain strong with over 60 days of supply. No spikes like those in the past are realistic in this economic environment....

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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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Second major discovery in offshore Brazil by Petrobras. The discovery is in deep waters and in terrain that will be challenging so it will be years before production is seen.

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So much for political campaigning and talk of inflation, inflation comes in lower in September after DJT tariffs of 10-15% on EU, Japan and other trading partners. The higher tariffs on China are action needed to reduce trillion dollar trade deficits the world has with China, deficits that are economically destabilizing for the world economy, with supply chain concentration a serious problem. US inflation in September came in at 3.0 percent lower than expected.  One reason is that the headline numbers are high but in actual practice the tariffs are on average at 12.5% not 17% or 25% as headlines show. The tariffs vary by country and the US was careful to keep them at 10% for the EU and Britain and 15% for Japan, the key trading partners. China is an exception at 47% because it is US policy to reduce the world's 1 trillion trade deficit with China and cutting this is a major goal. For decades the US tried every possible way to bring it down to no avail till this effort with tariffs. Another is exceptions in products- for India this includes semiconductors, smartphones and pharmaceuticals. Another factor is that postpandemic inflation in 2021-2022 created higher profit margins in auto, retail and other sectors of the economy. As a result only 30-40% of the tariff gets passed onn to consumers. In autos only about 20% because buyers cannot afford the high prices. Some tariffs are still being negotiated and are a foreign policy tool to get India to stop funding Russia in the Ukraine war knowing that India was importing most of its oil from non-Russian sources till 2019. China is also funding Russia, that is true but the US can insist on exercising its leverage with Asian partners not China. With China the tariff on fentanyl and the overall 47% tariff- down from 57% after meetings in Busan, South Korea between Xi and DJT last month- shows the US takes the Chinese role in distorting world trade to its benefit seriously.  ...

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John Hills, a law professor at Indiana University and author of "The Political Centrist," says tough political exchanges are endemic to the American political system. Others say putting crosshairs on representatives in Congress like Giffords on websites or its equivalent wasn't the practice since the times of Jefferson and Adams. We looked at the letters of George Washington during the long struggle with the British and it showed composure and civility even in dire circumstances and difficulties. Criticism by Washington of the lack of help and risks he was exposed to throughout the war was worded carefully, with civility and yet conveys the great urgency. What about the letters of Jefferson and Adams who were on opposite sides of the debates of that time, a time more infused with momentous issues because of the French revolutionary tide in those years? A letter to Abigail Adams, from Washington, June 13, 1804, gives a glimpse of that relationship: "The friendship with which you honored me has ever been valued, and fully reciprocated, and altho' events have been passing which may be trying to some minds, I never believed yours to be of that kind, nor felt that my own was. Neither my estimate of your character, nor the esteem founded on that, have ever been lessened for a single moment, although doubts whether it would be acceptable may have forbidden manifestations of it. Mr Adams friendship and mine began at an earlier date. It accompanied us thro' long and important scenes. The different conclusions that we had drawn from our political reading and reflections were not permitted to lessen mutual esteem, each party being conscious they were the result of an honest conviction in the other. Like differences of opinion existing among our fellow citizens attached them to the one or the other of us, and produced a rivalship in their minds which did not exist in ours." Jefferson in this letter says that one act of Adam's gave him a moment of personal displeasure, the last appointments by Adams as President "from among my most ardent political enemies." This says Jefferson "laid me under the embarrassment of acting thro' men whose views were to defeat mine, or to encounter the odium of putting others in their places...If my respect for him did not permit me to ascribe the whole blame on the influence of others, it left something for friendship to forgive, and after brooding over it for some little time, and not alwasys resisting the expression of it, I forgave it cordially, and returned to the same state of esteem and respect for him which had long subsisted...I maintain for him and shall carry into private life an unform and high measure of respect and goodwill, and for yourself a sincere attachment."...

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Vikram Pandit's style at Citigroup after 4 months, thoughful, asking lots of questions, fixing the little things that actually matter a lot, like the unwillingness of some heads of divisions to sit together in the same room, some hiring decisions and new lines of reporting and responsibiity and interaction in the organization structure that call for teamwork, discussion and collaboration. The oldtimers like Krawcheck used to clear lines of reporting are now getting used to the new culture of collaborative working. His style is first to come to grips with issues and not to come to snap decisions based on intuition, such as interviewing at length and asking tough questions at length to Ajay Banga, head of Citi's international group about the extensive defaults in Citi's consumer loan business in Japan. One of his views is that only if you get the foundation right can you talk about vision. Regarding pettiness in management and small grudges, its either going to be a partnership or you're not going to be here. some of his colleagues like James Forense say that they would take substance over form, judgement over form, any day of the week. And while he does not shy away from details like expecting lower level employees to pay for sporting event tickets Citigroup earlier gave out free, and he himself rides the subway sometimes, he has made some of the bigger decisions. Among these, getting capital from outside sources by travelling extensively abroad, urging Citigroup's board to slash the dividend for the first time in 20 years, selling off 2 peripheral units that did not belong and a third Primerica on sale also. And urged by his mentor former Treasury secretary Rubin who also used a note pad and a thinking thoughtful style like Pandit's at Treasury during the Asian banking crisis and the Mexican financial crisis, Pandit has been direct and realistic. He tells Wall Street that the fate of Citigroup is going to be decided to some extent by the duration of the environment we are going through, the twin perils of the debt-market crisis and the sluggish US economy. And that for now issues like these are going to overwhelm our actions. Pandit's father was a senior executive of one of India's leading pharmaceutical companies when the family moved to New York, so he has grown up around business, and is able to ask the question quite sincerely and matter of factly of his managers at the beginning of every meeting. "What are you doing with the shareholder's money?" After which come the torrent of well thought out questions, probing deeper each time, especiually where issues are festering for a long time, and remain unresolved. ...

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The Obama idea is to use the need for investment and the need to create jobs constructively by turning it into an opportunity. The opportunity arises from the need for several things that the government is also best equipped to provide or is uniquely equiped to provide. Such things as first rate broadband access across the country, putting in asmart electric grid, putting in the new energy infrastructure of windmills, solar panels, energy efficient appliances and energy efficient heating and cooling systems. Such things as mass transit, work on schools, sewer systems, dams and public utilities, roads and bridges, in the state of the art infrastructure building that is needed. All these things create jobs and create a sustainable advantage for a 21st century economy in which US companies will compete with companies from other countries. It includes such things as education and making it possible for kids to go to college and investing in education. Two concerns are present from conservative economists about this investment on a large scale from $500 billion upwards. One is the large deficit and public spending which crowds out investment by the private sector. In this case with the danger presented by an economic crisis arises a unique opportunity for government to do the right thing if it grasps it correctly and do as President Eisenhower did in building the interstate highway system at a cost of $128 billion according to governemnt estimates in 1991. Would the private sector be crowded out? In these circumtances faced today many companies including the largest ones are faced with great uncertainties and a precarious existence, and with a climate of fear and disappearing credit are not likely to come forward with these investments, so the danger is not in crowding out but in the risk that no such investments will be made at all. The second concern is that a lot of this money is either wasted or each dollar is not spent efficiently. Obama in response to this concern says he will have new spending rules, and measuring the progress for investments made by the number of jobs created, energy saved and American competitive position in the world. As an indication of the jobs created for each dollar spent the nation's governors have $136 billion in road bridge, water and other projects in which the money can be put to immediate use. Their estimate is that each 1 billion dollars spent would create 40,000 jobs. The estimate is from the nation's governors who met with Obama in the 1st week of December 2008. Local and regional transit systems have $8 billion in additional projects that can begin immediately like buying hybrid buses ans expanding light rail systems. ...

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Harold Meyerson poses some difficult questions for those who like Mitt Romney say America's choice is between the merit based society Romney sees and the "European social democratic vision." In Romney's words- "a merit-based opportunity society- an American-style society- where people earn their rewards based on their education, their work, their willingness to take risks and their dreams." Meyerson cites several studies to show that European societies today are more dynamic on several measures of performance than America's. In intergenerational mobility he cites a Brookings Institution study by Julia Isaacs, that shows incomes are three times more likely to remain the same in America compared to Denmark, Norway and Finland, and one and a half times more frequently than in Germany. Another measure evident from Germany's experience is the degree of union-company-government cooperation to worker retraining, corporate boards that have representatives of workers and management, the "kurzarbeit" program of retaining employees to smooth out impact of cyclical swings in the economy on workers and companies, and worker's willingness to show restraint on wages especially because management wages are not way out of line as in America. Meyerson reminds readers that the U.S. had a more merit based society in terms of upward intergenerational mobility, distribution of rewards of work between workers in manufacturing and service sectors and management, educational mobility with the G.I. bill, in the first 30 years after the Second World War. In a separate article in the Washington Post on Jan. 5, 2012, David Ignatius poses questions about the effects of globalization in shrivelling the middle class. The access to lower wage manufacturing in China, India, Mexico, and other countries, and lowering of wages in the U.S. to be competitive, was part of globalization. The two tier wage structure in the U.S. automobile industry is one example, making middle class wages a thing of the past. Globalization opened up new markets for American companies. Yet many of the gains in employment were made in emerging markets, as the example of GM's expansion in China showed, with automobile manufacturing expansion inside China....

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About 30 million Mexican children ages 4 to 18 years will be taking lessons on television. School has been suspended since March. With 60,000 deaths and the third highest fatality rate after Brazil and the U.S. Mexico's government has chosen to take this step. Television reaches 94% of the country compared to 80% for the internet. Radio lessons will also be broadcast. Here children are shown taking lessons on television.

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Ukraine's economy is hit hard as GDP contracted by 14% in November and GDP is expected to fall by 10% in first quarter 2009. Ukraine's currency has shed half of its purchasing power since late summer. Ukraine is heavily dependent on commodities. Steel output fell by half and industrial production fell by 29% in November. The parties of the president and the prime minister have formed a coalition so that crisis handling measures can be passed.