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  As policies moderate, and policy action delivers results such as stopping the war on Ukraine, rebuilding the US Navy, and trade that brings back jobs, fentanyl deaths near zero with CMC (Canada, Mexico and China) forced to stop fentanyl flows, the small slippage in DJT support from federal workers in Republican districts and losses to business from wide deportation could reverse. DJT's first 100 days with strong action from the start, given the 2 year window before a possible Democrat takeover of the House and letting out the frustration on border policies of the Biden administration, are taking the Nation by surprise. Immigration policy on illegal migration is supported generally in the US except where it reduces customers to small businesses for fear of deportation such as occupational therapy.  Government employees who voted for DJT are uncertain about their jobs and are a group that is taken aback by the speed and action on cutting the government federal bureaucracy of 2 million workers. Many federal workers are spread out in the 51 states and many are in Republican or Republican leaning districts. With some slippage DJT approval is now at 47%, and slightly higher disapproval at 51%. As a result these two groups are moving away from supporting DJT in the first 100 days. Some who still support him outside these two groups are expressing disapproval of action coming this early and forcefully, yet support the overall policy agenda on immigration and cutting spending. There is also a small yet vocal group that supported RFK Jr. and this group remains energized by his promise to take action on health. Others who wanted strong action on immigration to reverse errors of Biden policies for illegal migrant entry and dispersal across America remain committed to DJT policy.  ...

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Argentina's presidential election on October 25, 2015, offers an opportunity for new leadership. President Christina Kirchner is limited 2 two terms by the constitution, she served 2007-2015, following her husband who was president 2003-2007. The candidate of Kirchner's Peronist Party, Daniel Scioli, governor of Buenos Aires Province, has 38% support in the polls, followed by Buenos Aires mayor, Mauricio Macri, of the centre-right PRO party, who has 30% support. The other candidate is Sergio Massa, former mayor of the city of Tigre, who leads the Renewal Front party, with 21% support. The election rules require the winner to win 45% in the first round or a 10% margin over the second place candidate, if not it goes to a runoff. Both Scioli and Macri are seen as being new faces with different policies to tackle the country's economic downturn, who would give Argentina a fresh start after the Kirchner years. A devaluation of the peso which has an official peg of 9.4, but trades unofficially at 15, and restoring trust of foreign investors, are some of the problems facing a new president....

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The sudden change in the prospects for Venezuelan bonds with the sharp drop in oil prices by Dec. 2014. Price of credit default swaps on Venezuela debt show a 61% chance of default in 2015, and a 90% chance of default in the next 5 years. In previous years Venezuela debt was considered safe by emerging market investors because of oil revenues. Venezuela and its state owned oil company, PDVSA, issued a significant amount of debt from 2007 to 2011. Analysts say the debt outstanding for PDVSA and Venezuela is $66 billion. In the short period of a year sharp declines in commodity prices have created a crisis for Venezuela's finances. Fitch Ratings has lowered the credit rating on the bonds to CCC from B. Venezuela's benchmark bonds traded at 46 cents to the dollar on Dec. 19, 2014, after dropping as low as 38 cents. Yields on short dated bonds are above 40%. Problems in Venezuela can create contagion effects for other emerging markets- Russia, Argentina, Turkey, Brazil, India, Indonesia, China- especially with Fed signals about raising rates which lead to capital outflows. ...

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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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This report by Juan Montes in the WSJ shows how much Lopez Obrador has changed since he lost by a small margin in the 2006 Mexico presidential election. His campaign manager, Tatiana Clouthier, says broadening his appeal to women, evangelicals, middle class Mexicans, rich and poor, is needed for Obrador to win in 2018. In elections in 2006 and 2012 Obrador continued to be seen as the candidate only of the working class. An effort is being made to change this image. Obrador, 64 years old from the party of the left, formed his own party in 2010 after leaving the PRD party. He is a former mayor of Mexico City. Five recent polls show Obrador leading by an average of 7.5 points over Ricardo Analya, the PAN candidate for president which now has the support of the PRD. PAN on the right and PRD on the left are other opposition parties. PAN party formed the government under Felipe Calderon before the current PRI president Nieto now tainted by corruption scandals became president in 2012. If he were to win Obrador would change the way Mexico was governed for 5 decades. His first step would be to review the 91 exploration contracts given by the government under the Nieto administration to check for signs of graft. Corruption is a key platform of the parties running against the current government of president Nieto, for both Obrador and the PAN/PRD alliance candidate Anaya. Obrador says he would keep balanced budget deficits and respect the central bank's autonomy. The shift would be from the current export model that Mexico has supported for 35 years, to one based on import substitution policies, higher salaries, and more government spending for education, jobs programs, healthcare, new oil refineries. With the Trump administration's stance on trade and immigration Mexicans are now showing anger and frustration, with 75% of Mexicans in a Reforma poll looking for change. Both the PAN/PRD and its new face in Ricardo Analya, 38 years old, and the Obrador party see corruption and with it in the Mexican context the rule of law as a key issue.  ...

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The language in the Eikenberry cables is stronger than previously thought. Eikenberry is Ambassador to Afghanistan and was top American military commader there before McChrystal. His assessment of Karzai the Afghan leader is bleak, about expansion it only makes Karzai more dependent on the USA and makes extrication difficult from Afghanistan, he flatly disagrees with McChrystal's plans to add troops and widen the effort, and his views on the Afghan army's capabilities are bleak also.

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A joint article by Robert Rubin, Clinton era Treasury Secretary and Jared Bernstein of the Economic Policy Institute. Rubin was senior adviser to Citigroup during the period that Citigroup leveraged itself and invested in lower quality securities that have left the firm exposed to substanital losses, and led to hiring a new CEO Vikram Pandit to clean up the mess. And this may explain the joint article with a less well known economist Jared Bernstein, and the tentative nature of their advice as the two differ on the important issue of long term fiscal deficits and still agree on investing heavily in healthcare, education infrastructure, worker training and energy. In a short recession they may be complementary and you could have the best of both worlds as in the other postwar recessions. But this is unlike any of the postwar recessions and is shaping up to be a long and deep downturn unlike anything seen in the postwar period. That Rubin does not even mention this shows that probably he is out of touch, as he was during his years when Citigroup was acting much like the other banks that were in serious trouble this year. Some of the decisions for lax regulation during the Clinton years were taken with the support of Rubin and Greenspan. What Rubin calls the longest expansion could have been for the most part good fortune and a steady period for the economy with Rubin's contribution being fiscal discipline, stewardship of the Mexican rescue package and committment to free trade policies, but not facing upto huge headwinds in the economy that required challenging leadership and judgement. Here Rubin mentions nothing that suggests bold vision and judgement, instead hoping that old policies that worked during the good times would somehow work today. And on some issues like labor being squeezed and getting a smaller portion of the economic pie with no support for unionization, a drop in the number of unionized workers and weakened labor bargaining strength, Rubin who now sees this as a bad trend for the working middle class incomes, did little in his years in the Clinton administration to reverse or slow this trend. He cites productivity growth of 20% from 2000 to 2007, and yet the real income of working age middle class households was falling $2000 or 3%. ...

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The Volcker rule is named after former chairman of the Federal Reserve, now 82 year old Paul Volcker. In its complete form it would ban banks from investing in trading activities. But with Treasury Secretary Geithner and economic advisor Summers being part of the team that supported deregulation in banking, the Volcker rule was put in a diluted form in the proposed financial reform bill. Only after it was supported by financial leaders with long years of experience, such as John Bogle, Nicholas Brady and William Donaldson, and with active participation by Volcker, did the Volcker rule in a modified form get the support of Congress and the White House. What grade does it get from Paul Volcker? A B not even a B+ says Volcker. Volcker regrets his earlier silence on this issue. His view is that there is a sense of nervousness about the long term, and this is justified. He says a lot will depend on a 10 member regulatory council that is created by the bill, and all depends on how tough and vigilant it is on a day to day basis with the banks. Analysts share Volcker's concern about "the certain circularity in this businesss," where things are going well for some time followed by another crisis. Volcker's concern is that the bill doesn't prevent bank's from getting into activities such as investing in hedge funds and other similiar activities....

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House members frustrated and angryover high unemploymet and the rescue of Wall Street that is doing little for americans who are losing jobs and shrinking small business, traded insults with Secretary Geithner and some called for hime to quit. A measure calling for for Congression Government Accountability Office to conduct audits of the Fed that includes interest rates and lending to individual banks that was proposed by Ron Paul was passed 43-26 by the House Financial Services Committee. At one point a Hopuse Republican told Geithner "the public has lost all confidence in your ability to do the job." And Geithner shot back with "what I can't take responsibility for is the legacy of crises you've bequeathed this country." Rep. Fazio (Dem. Oregon) was one of the voices calling for Geithner's resignation and said in an interview that Mr. Geithner is too close to Wall Street: "Quite frankly, all the gamblig on Wall Street is doing nothing to put people back to work in America and rebuild our economy." Geithner is coming in for criticism for the rescue of AIG that indirectly rescued Goldman Sachs. Congressman Ron Paul is the author of a best selling book "End the Fed." Mr Paul says his amendment would not hinder the Fed pusuing an independent monetary policy. What he is concerned about is that "ther's plenty of political influence goig on now- presidential politics, influence by Goldman Sachs and the banking industry, and its all done in secret." See the links to Geithner and contacts with the banking industry. It was in 1978 that a law was passed shielding the Fed from Congressional auditors reviewing the Fed's monetary policy operations, loans to foreign governmets and direct lending to banks. The Fed isn't disclosig interest rate deliberations and only agreed to do this with a5 year lag in the 1990's and Ron Paul/s proposal would reduce this time lag to 6 months for the GAO access to this information....

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Renewed calls for higher capital reserves by banking regulators and Britain's Independent Banking Commission after $2 billion in losses at UBS. The losses were a result of derivatives trades made at UBS's London trading desk.

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A couple of things can be noted about the burgeoning Chinese market for cars. Most car buyers are first time buyers. But that is to be expected as China started with a small bases of cars to begin with. What is interesting about these first time car buyers is that they ask a lot of questions do their research and are looking for the best car for the money in terms of features, safety, reliability. So its also a sophisticated first time buyer that carmakers are dealing with. This car buyer is also looking at waiting to save enough to buy a better car as far up the ladder as the car buyer can go in terms of features and value in safety, reliability, design, even if this means waiting longer and saving for longer periods.In this sense the Asian car buyer may be different and less bent on instant gratification to get into a 4 wheeled vehicle. What this is doing is putting the domestic manufacturers under a lot of pressure to match the overseas manufacturers. Geely and Cherry the larger domestic makers have to come up with just as good or better a product to get new customers. At this time the overseas makers of cars like the Buick Excelle, the Toyota Camry and the Volkswagen Jetta have the advantage as they are established brnads. Its interesting to compare this with the experience of japan the other large Asian carmarket. In Japan Toyota, Nissan and Honda were the only carmakes available because of trade barriers in the Japanese market in postwar Japan. China is a relatively open market and China's approach seems to be to get the Chinese carmakers to do better in an intensely competitive market as opposed to giving them favorable treatment. Another aspect of this first time car buying in a country where car sales have increased eight fold since 2000 and now exceed sales in the Japanese market, is that this market is abit precarious as the example of the Li family shows. Li Rifu purchased a Geely for $9000 but later after he contracted cancer and had $40,000 in medical bills had to sell the car. China has no social safety net so that if there is a medical or other emergency or crisis in the family there is nothing to fall back on and the family ends up selling the car to pay for expenses....

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The slowing growth in China is reducing growth and depreciating the currencies of iron ore producing countries Brazil and Australia. China makes 50% of the world's steel and imports 1.2 billion tons of iron ore traded annually. Australia exports 80% of its iron ore to China valued at $67 billion in 2013. Brazil sends 50% of production to China. For the first time in 15 years China's steel use declined 0.3% to 500 million tons in the Jan-Aug. 2014 period. The mining companies have invested heavily in ports and railroads for expanded production. BHP CEO Mackenzie says the strategy is to maximize production because reducing production increases costs on a unit basis. The result is a decline in price from $135 a ton at the beginning of 2014 to $69.80 on Nov. 28, 2014. Prices could decline to the $50 range in 2015, according to Citigroup analysts, because of an estimated iron ore surplus of 300 million tons by 2018. As China expands recycling of older cars and washing machines to produce steel this will reduce future iron ore demand in China. JP Morgan forecast for Australia reduces GDP growth to 2.8% from 3.3% for 2015, and Brazil reduced its forecast for 2015 to 0.9% from 1.8%....

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What is the role of a small wine importer of European wines who supplies local stores in NY city, and other similar business, in a issue of $1 trillion trade imbalances that destroyed American manufacturing and millions of jobs as large US business corporations shipped manufacturing to China? The trade deficit with China has led to loss of 3.8 million jobs, 75% of them or 2.9 million in manufacturing.  Go back to 1990 and Beijing was a city of bicycles not cars. If Beijing shifted to a open economy and simply imported products from the US and Europe as it had done since 1700 it would have remained a backward agricultural economy. It took 20 years of focused effort after 2000 for China with US technological assistance to excel in manufacturing, as the US had done after 1920. Can or cannot the US excel in Manufacturing with its own focused effort and restore jobs and decent wages to the American people, that is the question. That a $1 trillion deficit that has already destroyed the US manufacturing and its capacity to defend itself by rapidly building up the US Navy, is that not an emergency, then what is, is also the question, and the role, the duty, of the president of the US in such a situation. The federal appeals court has allowed the DJT Tariffs to remain in place till it goes to the US Supreme Court. Today May 30 the WSJ in a front page article shown here says the one California shipyard could assemble a supply ship in 5 days in 1942. China's independence in the fight against Imperial Japan and the Kwantung Army's adventures, and the independence of Europe in the 1940's depended on this vital US capacity. Is this forgotten? FDR acted step by step by 1938 to restore the US lost capacity at that time, what is the role of the president today? ...

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The practices of Bain Capital under Mitt Romney, as it merged management consulting with private equity to take stake in companies that it would be asked to turnaround. The main focus for this type of investing was to harvest as much capital out of the acquired company as early as possible, leading to management decisions that were driven by this overriding aspect. This meant large layoffs to reduce costs, loading the company with debt which in many cases led the company to bankruptcy yet benefitting the investors. The practices were adverse to the accumulation of human talent.

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What this Editorial board opinion in the Indian Express is saying is that India should concentrate its efforts on modernizing its economy on a scale that is similar or surpasses that of China because of its access to the latest technologies. Just as China capitalized on the opportunity presented by its entry in the World Trade Organization in 2001, through an economy wide effort to build a manufacturing and export logistics base. India is presented with the opportunity of building its own manufacturing and export logistics base as supply chains are being redesigned in 2023. This requires a longer term plan with clear thinking and concentrated effort with the entire resources of the nation. What looks like a small or gradual shift in supply chain with the US and EU adding India and Vietnam to their Chinese manufacturing base is going to change with every change in world events, as the US concentration of manufacturing in China becomes a situation that is impossible to to maintain. The only logical way for the US and following the US the EU to create a proper balance in its political relationship with China is to change fully its lopsided concentration of manufacturing in China. Biden is only making the initial moves, the EU is only waking up to the need to make its own changes to reduce this concentration. How much distance does the US need to cover to reduce its concentration in China? By a large amount because the shift of manufacturing was excessive and ill advised done as companies in the US raced in a competition to shift outside over 2 decades and simply outdid themselves and performed a disservice to the workers and families of America whom they served. Just for the US to get workers and families to benefit from return of good manufacturing jobs to the US and restore its manufacturing base that has shriveled, it will have to be a massive enterprise, where day by day it becomes more evident that more and more needs to be and accomplished in an accelerated way. What this also means where appropriate to leave a progressively year after a year larger base in India, and also Vietnam, much larger than is envisaged today. This situation is even more acutely felt in Japan which to bring a proper balance in its political relationship with China needs to even more urgently reduce its concentration of manufacturing in China. It must be the task of the Modi government to have a clear view of the road ahead- build the needed logistical base for exports using the latest technologies and set higher and higher targets for manufacturing.  If you look at the map of Asia this is the Global South- India is 60-70% of the Global South with its population of 1.4 billion people mostly young with aspirations for a modern economy like that of the US and Germany. Add to that Indonesia and Vietnam, and other nations already in the redesigned supply chain in 2023 and you have 2 billion people in Asia. Concentrate on this for the next 2 decades for a complete transformation of India, that is what the younger generation demands of its government. ...

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Workers ended a 3 month strike at Caterpillar's Joliet, Illinois plant, essentially giving in to reduced healthcare and pension benefits and wage freezes for older workers. Under the deal workers hired before May 2005 receive no hourly pay increase, workers hired after that date get a one time 3% pay increase with future pay increases decided by Caterpillar management. Hourly pay at the plant ranges from $13 to $28. About 25% of the older workers are eligible to retire. A $7.8 million fund to supplement incomes of laid off workers will now be used for retirement bonuses. Caterpillar persuaded workers to ratify the contract by increasing the bonus for ratifying to $3100 per worker from $1000. During the strike Caterpillar continued operations by using managers and temporary workers and using 100 workers who crossed picket lines.

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Kerala has a highly educated people and longevity is over 70 years so the investments and prioritites for health and schools do pay off even with low per capita incomes. On the other hand industrialization and trade are definitely also needed to generate jobs and money for infrastructure to support the industry and jobs. Kerala has addressed that problem in a state with few hopes for employment by sending residents to the Gulf and other parts of the world. About $5 billion in remittances from abroad support the local economy and one in 3 residents depend on this source for income. So definitely Kerala needs to promote free trade. What about tourism? Could Kerala use its coastline and coconut palms fringed rivers and lagoons for a much bigger international tourism than it does now? And foreign investment- is there any reason a state with high educational levels and health standards cannot use these as assets to attract foreign investment to then generate the revenues to build the infrastructure to generate even more and substantial foreign investment, given a change in attitudes that sees trade and foreign investment as beneficial and eventually moves the local economy up the ladder to make more sophisticated products and develop advantages in a global economy? Even countries advanced in industry like japan today are trying to attract foreign investment because it breaks the insular way of looking at things and brings in new ideas given the efforts to attract the right kind of foreign investment that will stimlate the local economy and bring in fresh ways of doing things as well as opportunities for acquiring new technology and knowhow. ...

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Ireland went off the cliff by taking enormous unregulated loans. The banks lent money freely and the regulators simply ignored the bubble that was developing through the last decade. The speculators, developers, bankers and regulators all let the bubble reach astounding proportions. One developer got a $6.3 million loan on a personal guarantee without meeting his banker. One 1000 square foot Dublin carraige house went for 3 million euros in an auction. One of the developers, Simon Kelly, says that everything was funded by the Germans through the European Central Bank. The sale of the Jury's hotel in 2005 resulted in the amazing price of 60 to 70 million euros per acre. Ireland's GDP which was $25 billion in the 1980's, reached $267 billion in 2008. The boom that was initially based on export competitiveness and the low corporate tax rate combined with an educated English speaking workforce, was followed by a speculative boom in real estate financed by Irish banks, where regulators simply looked aside and placed no controls on lending. To get an idea how the government looked at anyone who raised a red flag, look at this quote from Bertie Ahern, prime minister of Ireland from 1997 to 2008, who said at a trade union conference: "sitting on the sidelines cribbing and moaning is a lost opportunity. I don't know how people who engage in that don't commit sucide." And this coming from an Irish politician who helped in arranging the Irish peace accords with the help of Bill Clinton and Tony Blair. The risks of such uncontrolled speculation in real estate was lost on regulators, the government, and politicians. And the bankers stopped paying attention to their loans, with everyone wanting to lend money to 10-15 deveopers who were able to drive the market. The regulator at the central bank simply didn't pay much attention to the reports he received every quarter about the lending. Now the average household in Ireland owes 132,000 to the banks, according to David McWilliams of the Central Bank of Ireland, and unemployment is at 14%. If the Irish had completely lost track of the picture, what about the German and British banks that loaned money to Ireland? Why was money being made so freely available to Ireland. One Irishman says getting a mortgage in those days was like getting cupcakes. With prices haveing reached the stratosphere at 60 million euros an acre, were the European banks also pushing money into Ireland beyond the ability of a small country like Ireland to repay? According to the Bank for International Settlements based in Basel, Switzerland, Ireland owes $139 billion to German banks and $132 billion to British banks. Easy money was also available from US banks for countries such as Argentina which suffered similar crisis in prior decades. Banking crises ocurred in Asian countries in the 1980's. Much of this experience was lost in the manner German, British and other European banks loaned money to countries such as Iceland, Greece, Ireland and Portugal. The Asian banking crises of the 1980's are being followed by European banking crises over two decades later. The ...

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Krugman points out the risks for the U.S. economy as the U.S. loses export competitiveness with the euro reaching parity with the dollar. The huge shift from $1.50 to the dollar at one point to parity gives Europe a sudden strong boost. Europe needs the boost to escape a deflationary trap, and there is little that can be done for capital flows and exchange rates, says Krugman. He points out that many Federal Reserve governors were clueless of the impact this could have on U.S. growth, sanguinely assuming the U.S. would boost growth in 2015. Better says Krugman for the Fed to be very careful about raising rates at a time when wage growth is sluggish, and inflation low.

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Chinese leaders at annual policy meeting turn to issues facing nation's 730 millon farmers, as urban outcomes year after year far outpace growth of rural incomes. See graph. Urban incomes have shot up just as rural incomes remain sluggish as the country has focused on rapid industrialization, rapid urbanization and an export driven manufacturing economy for two decades with some success because of the focused effort. But this focused effort is dependent on the ability of Western Europe and the USA as well as other countries sucking in cheaper Chinese manufactured goods. This ability of the western countries to absorb Chinese manufactured goods at an astonishing rate is now called into question, and maybe permanently impaired after years of out of control consumption and spending and easy credit with the impact of the credit and housing crisis. As one of the aspects of this focused effort was to make enough rapid progress in industry and urbanization that it could stay ahead of the problems facing the rural areas and farmers, the new situation in western countries and China's lowered growth rate with lower exports, calls for new thinking on how to address the problems facing the rural areas and farmers. Part of the problem is that farmers do not own land in China. The government owns all the land and China's farmers only have 30 year leases on the land and technically that land cannot be sold though it can be transferred. A related aspect to this is that farms though having 50% more productivity than in 1980 are still small by western standards and it takes a lot of land to feed the growing needs of a more affluent urban population. The typical Chinese farm is 1.5 acres compared to 15 acres in Hungary and Poland and 432 acres in the USA. Obviously the US farms are huge and China does not have the vast acreages of land compared to the people, but larger farms would enable the kind of improvements posible on larger farms to raise productivity. Ways have to be found to increase farmers incomes and to enable farmers to move to urban areas which means creating more jobs. This will have to be done in the context of a domestic led growth and trade with other Asian countries as the export drive and export industries shipping products to western countries see their growth fall. ...