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Inherent conflicts between views of Reidel, Biden and other policy advisors such Richard Holbrooke, all wary of Hamid Karzai's government in Afghanistan and General McChrystal -whose experience in tactical strategy was his strong point, not an overall perspective that took into account factors outside US control such as the people, their history, recent history, the terrain, lack of viable government, neighboring Pakistan- spill out into the open. Holbrooke, the special ambassador to the South Asian region has serious differences over Karzai with ambassador to Kabul, Eikenberrry, and with Jones, National Security Advisor. Eikenberry has his own differences with Karzai. See the group "Eikenberry Cables," which provides his cable reports from Afghanistan which talk about Karzai, the Afghan military, and the prospects there, in bleak terms. The same Eikenberry is shown here telling Jones that Holbrooke's chilled relations with Karzai are not helping, and Jones assuring Eikenberry that Holbrooke is on the way out. Followed by Secretary of State Clinton supporting Hilbrooke by talking to Obama. See also the group "April 2010 Biannual Defense Departmet Report on Afghanistan," which shows that of 92 districts surveyed none supported the Karzai government, somethig that must cause policy team members to pause and think....

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The Economist describes the fraud in the election and the odious group of warlords and crooks that Karzai has pulled together to get support for this election. If they get as reward positions in the ministries then "the war is over" according to one diplomat. And without acredible government the chances are poor for any"good outcomes." Eide, the UN diplomat in the country says ultimately this will be decided not by governments but by people sitting at thier kitchen tables making up their mind as the follow the information in the media. And the President has only 37% of Democrats with him who want to see more troops in Afghanistan in a recent poll.

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This New York Times editorial after the Senate passed a bill in October 2011 calling for action on the misaligned Chinese currency, points to ways a misaligned currrency is damaging for China. It cites the Peterson Institute for International Economics estimate that this is costing China $240 billion a year. This is a result of accumulating huge dollar reserves that have a declining value against the renminbi. Higher import prices lead to higher inflation. And low interest rates on savings, to the point that they are lower than the inflation rate, hurt the vast majority of Chinese and reduce domestic consumption. And perversely this leads to money pouring into speculative uses such as real estate, creating unsustainable bubbles in housing. The Times editorial says China is not generating jobs from this strategy, as the export strategy is relying on use of advanced technology in manufacturing and not creating many jobs. It cites a statistic showing employment has increased by only 1 percent a year from 2004 even with GDP growth above 10%. China is beginning to realize the cost of this strategy, and is planning a shift in its five year economic plan. But this rebalancing has many obstacles. The current system dominated by state run companies, banks, local and federal government, is biassed in favor of the old export led strategy, and experts are pessimistic about the possibilities for change. The Times suggests China may be falling back on the export led strategy as the global economy is slowing. The whole system would have to change after three decades of this kind of development, and would require new leadership and major changes....

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Mike McNamara, CEO of Flextronics, on the increasing competitiveness of U.S. manufacturing and the return of manufacturing jobs to the U.S.

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This WSJ editorial says the recent agreement at the Caterpillar Joliet plant in llinois is not about leverage but about increasing U.S. manufacturing competitiveness. As U.S. competitivness improves and the economy grows wages will increase. It does little service to management, labor and the U.S. economy for above market wage rates to lead to loss of manufacturing competitiveness as happened in the U.S. automobile industry, resulting in closing of plants.

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The best that can be said about all the efforts to stabilize the housing markets is that they help in the context of the credit crisis that hit the economy hard with the Bear Stearns crisis and help to provide an orderly retreat for housing prices and ways to soften the blow to homeowners and lenders caught up in the wave of foreclosures. But housing prices themselves have not declined anywhere near what one would expect. In fact BW, p17, April 7, 2008 shws percentage changes for existing homes from Feb 2007 to Feb 2008 with data from the National Association of Realtors. And they are surprising when you consider sales for the northeast down 26% and prices up slightly 0.4%. Elsewhere the sales are down 29% in the Western states for a 13% price decline, sales down 20% for a 7% price decline in the Midwestern states, and sales are down 22% for a 9% decline in the Southern states. Jobless rates are 3.9% in Austin, Texas and Birmingham, Alabama and only Detroit, St Louis and Cleveland have jobless rates above 6%. What this suggests is that the unemployment situation has not seen the brunt of this credit tightening and drop in capital investment. As house prices have not declined much declines over 10% mostly in the western states and places like Detroit but not in the northeast and across the south, and unemployment still low across many regional communities, consumption spending has not seen the brunt of this credit tightening. Once tightened credit conditions hit payrolls as companies cut their workforce and unemployment moves up then expect to see greater housing price declines as more houses go into foreclosures, and then expect consumption spending to feel the impact which would reduce sales and further trim payrolls as companies run their factories at less and less production capacity. This sequence would continue and bring the economic crisis to more and more parts of the country in a manner that we have hardly see upto this point. What we have seen is the unfolding of a collapse of mortgage securities firms and of mortgage securites insurance providers like ACA, and with it the huge writedowns about $150 billion taken by the investment houses and the banks. And this has happened as a wave of foreclosures took place in 2006. And the collapse of Bear Stearns with the effects felt in global stock markets. In the communities themselves in the areas of consumption spending and in jobs the conditions will only now begin to be felt and the real impact not felt till the end of 2008 and into 2009 with the Fed action to shore up confidence adding several months in slowing the process. See the link to BW, Bernanke the Reluctant Revolutionary, where the BW estimate is that Americans took on about $3 trillion in additional debt between 2000 and 2006 from what they would have taken if they had followed the trajectory of spending patterns that had prevailed upto that point, with their recent free spending ways. It would take abot 3 to 4 years conservatively for Americans to work down all that debt. Another way of saying this is that consumption spending is going to take a big hit and with it sales of companies and consequently higher unemployment and more part time labor force with less benefits, which would tend to depress consumption even more. The winds of housing, credit, consumption and unemployment would all hit the economy in about 12 months time. Credit will further tighten as BW estimates about $130 billion of additional writedowns still expected....

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All sectors of the U.S. economy see an increase in hiring, including retail, transportation, healthcare and manufacturing, as the economy adds 288,000 jobs in June, according to the Labor Department. Manufacturing added 16,000 jobs, transportation 17,000 and the public sector increased jobs by 26,000. Hiring also picked up for high school graduates compared to the poor record in 2013. In 2013 one Barclays economist says the jobs for high school graduates at this point were declining by 16,000 a month on yearly basis. He says employers are now adding 29,000 jobs for high school graduates a month in 2014. The unemployment for high school graduates declined to 5.8% in June 2014, for persons with some college education or an associate degree 5.0%, for college graduates 3.3%. Barclay's estimate is that the U.S. added an average of 231,000 jobs a month for the first half of 2014. The inflation rate remains at about 2%, giving the U.S. Fed more flexibility in setting rates to support jobs growth. The lower unemployment rate of 6.1% understates the underemployment, as a more accurate measure of employment which includes people working part time because they cannot find jobs is at 12.1%. The proportion of Americans in the labor force is also at a 36 year low of 62.8%. These two indicators for unemployment, unemployment including people working parttime, and the proportion of Americans in the labor force, combined with inflation, are the main indicators Fed chairmam Yellen is looking at....

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A recent book "The Spirit Level" has become popular in Britain. It says that countries with greater disparities in income also do worse in a number of social indicators, from higher murder rates to lower life expectancy. It also affects the consensus in society which is a necessary underpinning for sustained economic development and economic growth. Inequality when it affects the middle class and reduces the size of incomes in the middle, or creates stagnation in incomes, poses large risks for society and affects economic growth. In the US the home foreclosure crisis and the lack of bargaining power of wage earners in the middle class has created this problem. This is exacerbated by the banking crisis and bad loans in the banking system. Studies show that slow growth in college graduating rates in the USA after 1970 compared to the period 1900-1970, has increased inequality, especially with today's knowledge economy. Germany is also affected by this problem as wages for workers have remained stagnant with the labor reforms. Interestingly a combination of economic growth and payments to the poor have increased the size of the middle class and its incomes in Brazil. The austerity policies in Britain will affect incomes and income growth in Britain for the middle class. In China the gap is widening quickly between the urban areas and the rural areas. And the policy of residency permits- the hukou system-which limits internal mobility from rural areas to the cities and towns, makes the inequality all the more glaring. The lack of democratic election makes the situation worse in China compared to Brazil, because free elections in Brazil enabled leaders from the working classes such as Luiz Inacio Da Silva and Ms. Rousseff to emerge as heads of government. These leaders pursued policies that would explicitly bring a more shared prosperity in Brazil compared to the leadership in China. In China policies are determined by entrenched interests in its model of development- the state-owned companies and banks and their managers, local and government officials of the Communist party, and businesses with the networks and connections with the Communist party and local governments. This is why the ginni coefficient which measures inequality has dropped significantly in China, putting it in the rank of developing countries with poor records in equality. Inflation in China, India and Africa also affects the poor and lower middle classes to a greater extent. Current trends suggest that rebuilding the middle class in the developed countries and providing fairer distribution in developing countries will be of serious importance in coming years. Especially with the likelihood of more economic crises which tend to adversely affect the middle and lower classes disproportionately....

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Morsi's authoritarian personal style, decrees and failure to give adequate weight to liberal opinion alienates liberals supporting El Baradei. The Salafi Nour Party is alienated by Morsi's improvement of relations with Iran. This weakens his administration with street protests in June 2013.

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Defense spending under the new Obama 2012-2013 budget for the fiscal year starting Oct. 1, 2012, is $525 billion, and an additional $88 billion for Afghanistan. This is $6 billon below the $531 billion budget for the 2011-2012 budget of $531 billion approved by Congress, $22 billion less than the Obama administration's proposed budget. An additional $115.1 billion was for Afghanistan. In a move to bring financial discipline to additional appropriations for foreign conflicts, the Obama administration is proposing in the 2012-2013 budget proposal a limit to "overseas contingency operations" appropriations. The total proposed is $450 billion for fiscal 2013 to 2021.

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Stewart points out that Japanese government efforts to prop up stock prices by buying stocks in 1992 failed after 2 years when the fundamentals did not support the government effort. Experts say that even if the stock prices recover in China in 2015 after government efforts to prop up prices, this will be temporary if the economic fundamentals do not support such high valuations. The Shanghai Stock Exchange has a P/E ratio of 37 and the Shenzen Stock Exchange has a P/E of 80, very high valuations. Earnings numbers from smaller companies in China are also unreliable increasing investor risk. Additional issues are the timing of the government's effort to promote a surge in the stock market in 2014-2015. It comes as real estate and housing prices are in a bubble and the economy is slowing rapidly.

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China's handling of the surging stock market, and use of the market for debt ridden companies to reduce debt loads, is based on an erroneous assumption of how equity markets work. China's lack of experience with declining equity markets during China's experiment with its form of capitalism since 1990, is a serious handicap in 2015.