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The Economist magazine points out that Indian companies will have to invest more in innovation if they are to maintain return on investment. It says the GST, government action to reduce corruption since 2012 through court decision on crony capitalism, better functioning markets for land, natural resources and capital, more efficient supply chains, will force large Indian companies to compete by becoming more efficient. Under the previous regime before 2012 large Indian companies were able to make high ROI but this was an illusory advantage, as the growth in the Indian economy could create opportunities for firms that can compete with innovation, quality and efficiency. In this sense the Indian economy is entering a new phase under the Modi administration with stretch goals and efforts to create  the next ten year period of growth very different from the past.

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Weymouth interviews Colombian President, Juan Manuel Santos. Santos was finance minister, foreign trade minister, and defense minister under former president Alvaro Uribe. The U.S. is negotiating a free trade agreement with Colombia. Santos has improved relations with neighboring Venezuela, which under Uribe were strained upto the breaking point. He is also improving relations with Ecuador, and working to strengthen the Andean Development Council. Santos says Colombia has a smaller drug problem after defeating the major cartels, though mini-cartels still operate in the country. On fiscal responsibility Colombia has introduced a rule in the constitution to limit deficits to 1% of GDP. Santos expects 5% growth in 2011. He hopes to protect Colombia's growth in a global financial crisis by strengthening regional reserve funds, multilateral cooperation of Andean countries, and central bank monetary policies. Santos plans to abolish the DAS intelligence agency in 3-4 months. He plans to create a new intelligence agency and transfer functions such as immigration that were under DAS to other agencies. He has also launched investigations and action against corruption in the government and against public officials working with local mafias. To do this he is working with the attorney general, prosecutor general, the controller general, and police. This has led to criticism from Uribe who sees the changes in policy pointing to deficiencies in the Uribe administration. Colombia is a country with a population of 46 million and plays a significant role in the northern part of Latin America. Santos assumed office in 2010 and was the choice of Alvaro Uribe. His policies have won him a 71% approval rating....

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University of Texas professor James Galbraith tells Tom Keene that its a good thing that the supercommittee failed because long term cuts to Social Security and Medicare would have inflicted significant damage to the middle class in the U.S. He says if the U.S. cannot make large investments in infrastructure building, one necessary step is to make a large increase in the minimum wage. He considers the ratings agencies downgrade of the U.S. credit rating an act fit for comedy, because these are the same agencies which not only missed the subprime crisis but actually benefitted and supported it with misconceived ratings.

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Paul Barrett of Business Week reviews McLean and Nocera's new book on the financial crisis; "All the Devil's Are Here." The title takes a line from The Tempest- "Hell is empty. All the devils are here." McLean and Nocera focus on securitization, the credit-ratings that were improperly given, and the chicanery of bankers, mortgage issuers and others behind the idea that every American should be able to have a home. Attention is also focussed on the loose monetary policy of the Greenspan era, with Greenspan airily dismissing all concerns, including concerns about the growing trade deficit with China. Barrett asks, what about the future? Barrett says the Bernanke easy monetary policy risks making the mistake a second time, and in all probability the devils will be coming back again in some other form.

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Eric Cantor, a House member from the Richmond area, who is the face behind the zero Republican votes in the House for the Stimulus Plan. He says Democrats should not take the message from this that they should not mess with the Republicans anymore in discussing the plans for the economy. Is this good policy though, when the bill has given some middle ground between tax cuts and spending, and the spending is on areas neglected for years such as roads and bridges, classrooms and energy infrastructure? And is there an element of lack of comprehension by Republicans stuck on ideological grounds, of the seriously deteriorating nature of this crisis which is likely not to come back with recovery in several years, and is a global crisis? When Prime Minister Thatcher, UK Prime Minister, left office, the British infrastructure rail, rapid transit, hospitals and schools, had been neglected for many years and voters were looking for ways to rebuild the dilapidated infrastructure. The economy was weakening under her Conservative party successor, giving the Labor Party its chance to make a come back on the grounds of rebuilding infrastructure and services, and improving the economy. In which case there are just as many risks in this approach of being left out entirely and losing credibility across the country. Sometimes a feel good position may not be the best, or the wisest option, and may be shortsighted. ...

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This New York Times editorial describes the impact on lower income Americans of spending cuts that are part of the Romney-Ryan plan.

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Peter Bernstein, colleague of Robert Heilbroner, economic historian, communicator and developer of efficient market theory and portfolio theory. He wrote several books on capital, risk and Wall Street and diversified investing. He like Heilbroner was a Keynesian, who believed government spending was critical to supporting the economy, and disagreed with Reagan. He believed that the deficit was not too large relative to the nations output, and government's role in the economy should not be curtailed. Government spending was necessary to a healthy market economy in Bernstein's view. His other point was that regulation of markets was needed to prevent a market collapse. His view was that the wealth and entrepreneurial energy generated by arising stock market were worth the risk. In a semimonthly newsletter he published for many years he said a week before he passed away at 90, that "with hindsight, most readers today would find our position in 2005 to have been a prescription for tragedy." He went on to say quoting Alfrd Tennyson, " tis better to have loved and lost than never to have loved at all. There was wisdom in Tennyson's words. Who can say he was wrong beyond debate? That would be asorry world indeed." Whats is interesting this that unlike many who get blinded to dangers such as selfinterested behaviour like that of the ratings agencies, the mortgage innovators who were more selfinterested than innovators, and banking executives interested in their bonuses, Bernstein, Heilbroner and others like him take positions on either side on the merits and on ethics, leaving out ideological bias. He is for financial innovation but is cautious at the same time, preferring to build theory he says. Its interesting that in 2005, he wrote the book "Wedding of the Waters: The Erie Canal and the Making of a Great Nation," a subject that another financial industry leader from that period, Felix Rohatyn, also talks about in his book "Bold Endeavours." There is a difference in the kind of selfinterested and reckless "innovation" of Mozilo, Prince and Moody's successors in the ratings agencies, and the innovation, watchfulness and entrepreneurial energy that Moody, Rohatyn and Bernstein have in mind....

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Don't let the current holiday season retail sales fool you as they have held up reasonably well. The impact of the mortgage and housing crisis will be felt in a delayed manner. It won't be till 2008 that the impact will really be felt. And the impact is expected to be lasting and deep, could take the rest of 2008, 2009 and into 2010 for this protracted tightening of credit. About $300-400 billion contraction in credit is expected when banks tighten their credit lending because of losses they are taking in the mortgage crisis. This will happen in an environment of falling house prices and consumers will not have access to the $340 billion in cash from home and mortgage equity financing that they took out in 2006, estimate of the Bureau of Economic Analysis. Auto, retail, apparel, and luxury items would be hit the most. On the jobs side not all the jobs will be lost in the USA. The USA imports about $740 billion in consumer goods and autos each year, which is one third of consumer spending excluding food and energy. The lower consumption in auto and apparel would affect exporters in Japan and China and South Korea. But Chinese exports have reached a point that they are causing trade tensions and a call for strengthening the yuan. An increase in American exports and lower imports could help bring down America's trade deficit. This could give China an opportunity to build its domestic market and markets in Asia and Europe so that it is not so dependent on the US market. For the US where the savings rate is near zero this is an opportunity for consumers to build their savings and reduce debt. Europe and India and the Middle East are expected to continue growth and China may see slower but continued growth in 2008 and 2009. In the US industries like aircraft and infrastructure promoting companies that sell to countries like Russia, India Brazil, the Middle East, and China will continue to grow. And because rates are still low large nonfinancial companies still have access to funds for expansion and capital investment. In a global economy the US consumer may be one part of a much larger picture. ...

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The yuan has gained 16% since the peg to the dollar ended in 2005. For years China has resisted letting its currency appreciate significantly, why the change of heart now? Its seen as a positive thing by China's leaders to let the yuan appreciate and its now part of Chinese policymaking. First it helps keep inflation down, keeps the rising prices of imports energy, commodities, and food under control as they are denominated in USA dollars. Second it sends a signal to manufacturers to move up to more sophisticated value added products that are not sensitive to pricing and can accomodate a stronger yuan, because its precisely the manufacturers who operate on thin margins and make lower end products who will go close down. They also cost the economy in terms of higher pollution and damage to the environment in a way that higher tech products do not. And China wants to undo or limit the damage to its environment. Third by lowering rebates or eliminating rebates and letting the curtrency appreciate its changing the emphasis from exports to domestic markets and domestic consumption. This combined with new laws on wages and benefits is designed to promote domestic consumption which can better carry the burden of economic growth than exports because of the slowing down of the developed western economies especially the USA which is going through what may be a severe and protracted downturn. It also helps that China need no longer be portrayed as taking advantage of free trade through huge surpluses. Its constructive as it will help rebalance the world trading system as the USA can improve its trade deficit and China can accelerate its growth by importing more western machinery and technology and not have to depend on precarious export markets for economic growth that it badly depends on to improve the living conditions of hundreds of millions of its people. By building a large middle class of consumers china can continue growth using its domestic markets at a pace that is still very healthy and not likely to build inflationary pressures which may be a welcome thing....

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Rep. Paul Ryan tells Bill Keller that his ideas on Medicare and Social Security are not "the last word" but a way to start an "adult conversation." Keller describes what a Romney administration might look like with Ryan, Dan Senor, and Glenn Hubbard.