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In a shift from statements at earlier summits which focussed on fiscal restraint, the Camp David summit continued the "firm committment to fiscal consolidation," yet emphasized jobs and economic growth as "imperative." There is new flexibility to address needs for economic growth and no specific timetables for fiscal balance as in previous summits. Obama had many one to one encounters with the other leaders. He discussed the euro crisis with Cameron while working out on a treadmill, and watched the Champions League soccer final between Chelsea and Bayern Munich with Merkel and Cameron. Each leader of the G-8, Harper of Canada, Monti of Italy, Hollande of France, Medvedev of Russia, Cameron of Britain, Noda of Japan, Merkel of Germany, was assigned a cabin in the rustic wooded setting of Camp David's mountains. A special effort was made to see that Germany's Merkel did not feel isolated in the setting because of the growing sentiment that austerity policies pushed by Germany are not working. On Iran, Obama stated that he was "hopeful that we can resolve this issue in a peaceful fashion that recognizes their sovereignty, but also recognizes their responsibilities."...

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A shift in priorities away from focussing on high growth to lower sustainable growth was announced by China's premier Wen Jiabao at the National People's Congress, China's parliament, in March 2012. This shift will reduce investment in infrastructure, power generation and exports, which will affect the level of imports of commodities from commodity producing nations in the Middle East, Australia, Canada and Brazil. It should increase imports of software, computers, entertainment, tourism and high tech goods from the U.S. and Europe. Chinese leaders have said they would make this kind of shift for some years now but growth has consistently increased more than the target rate, and domestic consumption as a percentage of the economy has actually decreased in the last decade. Now 9-10% growth rates may be a thing of the past and the target of 7.5% set this year may be actually closer to the real figure. The Chinese leaders have belatedly realized the need to make these changes now because slowing markets in Europe -which is seeing declining growth and high unemployment- and in the U.S., make the issue impossible to avoid. Wen told the Congress: "Accelerating the transformation of the pattern of economc development... is both a long term task and our most pressing task at present... Domestically it has become more urgent but also more difficult... to alleviate the problem of unbalanced, uncoordinated and unsustainable development." This is his way of saying that its unavoidable and better to start in earnest now, and at the same time recognizing the resistance to change from the stateowned companies and the other interests who have benefitted from surging growth, and now occupy a central role in the power structure. An opinion article in the People's Daily, China's official newspaper, said: "imperfect reforms are to be preferred to a crisis caused by no reforms." The World Bank's president Zoellick is respected by the Chinese leaders. He also urged them to make changes now. The recent report of the DRC, China's planning research arm, and the World Bank, also laid out the new direction away from a focus on infrastructure to domestic consumption. The fear is sudden deceleration in the absence of policy action. The impact of this will be negative for commodities over time, leading to slower growth in Australia, Brazil, and Canada. It should boost imports from Europe and the U.S. of high tech, consumer, pharmaceutical goods over time....

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The IMF's changing views on the value of fiscal austerity. In the current debate about the value of fiscal austerity, there is the IMF view, a German view based on its own experience, and the views of other countries in Europe. The IMF's view has shifted over time. The IMF World Economic Outlook 2010, describes its view of the effects of austerity measures in the form of spending cuts and tax increases- "Fiscal consolidation typically has a contractionary effect on output. A fiscal consolidation equal to 1% of GDP typically reduces GDP by about 0.5% within 2 years and raises the unemployment rate by about 0.3% percentage points." Over the longer term there are benefits as the private sector is not crowded out in the search for captal funding by the excessive government borrowing. The IMF's economic models suggest that it would take 5 years before reaching the breakeven point when the benefits of austerity measures exceed the effects of austerity. The German view held by German central bankers is that the actions stimulate growth in the short term. Manfred Neumann, professor emeritus at the Institute for Economic Policy at the University of Bonn, says this is called the "German hypothesis" as it reflects the experience of Germany from austerity actions taken by Germany. Laurence Ball, professor of Economics at John Hopkins University, is critical of the "German hypothesis" and its application across Europe in different situations. Germany is a large exporting nation and exports helped counterbalance the effects of austerity measures. Within the eurozone with fixed exchange rates the exports of less competitive countries cannot be boosted through devaluing the currency to gain price competitiveness. The other problem is that with interest rates close to zero in the euro zone the central banks cannot cut rates aggressively to counteract the effects of spending cuts. The problem gets compounded when a number of countries are taking austerity measures at the same time accentuating the downturn....

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Arvind Panagriya, Prof. of Economics at Columbia University, points out the key initiatives of the Modi government in its first four years which will show results in future years for development of the country.  He mentions the Swachh Bharat Mission and cites results that show rural households with toilets are now 84% up from 38%.  By 2019 the whole country will be defecation zone free on the 100th anniversary of the birth of Mahatma Gandhi. The Dhan Jan Yojana DJY accounts opened for rural households are up to 316 million. Aadhar cards for identification are up from 650 million to 1.2 billion. The Aadhar and DJY work together to enable direct transfer of benefits to poor households, eliminating the leaks in benefits transfer and ghost accounts of the period since independence in 1947. Not mentioned by Panagriya is the Health Insurance scheme for lower income households that enable families to survive a sudden medical expense that could put them in dire straits.  These efforts work in a way to change India from the ground up from its villages and rural areas as envisioned by Mahatma Gandhi in the struggle for independence. The land acquisition law amendments were put on hold till farmers concerns could be better accomodated, an area of concern for industrial development cited in an editorial in the Hindu newspaper. Fiscal consolidation and inflation targeting have resulted in an average inflation rate of 4.3% for the 4 years of the Modi government. Inflation was over 9% in the last 2 years of the previous Congress UPA government with GDP growth dropping to 5.9% for the last two years. Average GDP growth for four years for the Modi government is 7.3%, even after the changes to implement GST taxation for one national tax eliminating state barriers in interstate commerce and demonetization to fight corruption and black money. Rate of GDP growth should be higher after the gains from the initiatives and the new GST integration of the country are felt, with increase in investment and FDI, after infrastructure improvements and land acquisition arrangements are made. Transportation infrastructure modernization initiative pushes ahead with the first bullet train in the pilot project for Ahmedabad- Mumbai set to start in 2022. This is a $17 billion project financed for $13 billion by the Japanese government at 0.1% loan for 50 years, moratorium on repayments for 20 years, using E5 Shinkansen series technology. Implementation of this project on a sound financial basis should lead to transformation of the Indian rail network, raising the level of technology implementation across the entire Indian rail system. Such an achievement would rival the first introduction of railways into India in the nineteenth century under the British. A new bankruptcy law is intended to free up capital for investment by putting behind the large number of non performing loans in the Indian banking system. Changes made by the central bank RBI are designed to speed up this process so that loss making enterprises are absorbed, consolidated or shut down, a legacy from the earlier period.     ...

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A Wall Street editorial on the problems identified in the budgets and finances of U.S. states identified by the State Budget Crisis Task Force co-chaired by Volcker and Ravitch. This includes Medicaid costs, underfunded pensions, and budget gimmicks that understate the true extent of problems.

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Michael McConnell, was Assistant General Counsel of the Office of Management and Budget from 1981-1983. He is now a professor of constitutional law at Stanford University. Here he tries to throw light on how the budgetary process that is required by law, and which makes the formal budget proposed by the president available for public scrutiny, was circumvented through a sequence of events starting in February 2011. The Budget Act of 1974 sets specific deadlines and a process for generating revenue, setting spending priorities, and setting the debt limit. The President first submits his administration's budget by the first Monday in February. The Congressional Budget Office has until Feb. 15 to score the budget using identical metrics for all proposals for a consistent scoring. The budget President Obama put forward in February did not take into account the growing deficit and was rejected by the Senate 97-0. The President proposed a new plan in April 2011, but the proposed budget was so vague that CBO Director Douglas Elmendorf said he could not score it. The subsequent efforts in June and July 2011 were carried out in closed door negotiations between senior Republican leaders and the Obama White House. This subverts the original intention of the law. The Budget Act says that both the House and Senate hold hearings on the proposal, with testimony from the administration, "national organizations" and the "general public." Transparency, openness and accountabilility are key aspects of a proper process that is democratic and prevents the parties from engaging in blame and competing claims. The closed door negotiating sessions and the lack of a concrete written budget proposal from the President has turned the current budget process into an effort by each side to see how it can best position itself for the 2012 presidential election. ...

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Julie Creswell and Graham Bowley look at the history of setting ratings for Greece at Moody's credit rating agency. Greece always had a history of problems with its credit standing including two defaults in its history. In 2004 Greece admitted to providing false statistics to enter the eurozone, saying that it had run deficits for each year since 1997. Before joining the eurozone Greece was assessed an interest rate of 15% on Greek bonds, after joining the eurozone borrowing rates dropped to 5%. Was such a large differential justified purely on the basis of the assumption that the eurozone would back Greece. Moody's held onto its A rating on Greek debt right upto December 2009, two years before the country faced certain default. Pierre Cailletau, Moody's head of sovereign debt ratings till the spring of 2010 admits that Moody's assessment was "mediocre" and that this is a very, very steep fall to see in a ratings- something had gone very, very wrong. The ratings agencies say bankers were selling the idea that the Greek growth story was real. This suggests bankers did not read Greece's financial history of defaults, did not understand the lessons of the recurring Latin American debt crises that countries such as Argentina could only absorb capital upto the point of productive capabilities. And the euro currency founders had left a weak gap - the perception through an implied guarantee that the whole eurozone would ante up the money for the failings of individual countries- into which bankers and Greece's political class rushed in. ...

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Phased retirement is becoming a popular option for many Americans nearing retirement. An example is a employee taking 25% less income for 13 weeks of additional time off to spend more time with a reitred spouse, for vacation, and for trying out new locations for retirement. It gives working Americans an opportunity to gradually adopt a more relaxed lifestyle, to better understand what it would be like in retirement. This option also has the advantage of using good health to add some working years and improve the retirement portfolio, with less demands of work.

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Beppe Severgnini is a columnist for Italy's newspaper Corriere della Serra. Here he describes the rift between generations in Italy that is holding Italy back.

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About Brazil's Bolsa Familia program to help the very poor by having requirements that they send their children to school and get them vaccinated. President Lula who comes from a poor background himself introduced this program to reduce poverty. This is done in a way that requires families to send their children to school and improve the chances of reducing both hunger and malnutrition as well as help bring improvements through education and health care, so that poverty is not passed on from generation to generation. It is unique in the developing world and making a real difference in Brazil. Brazilian advisors are helping India with its program, which merely provides food subsidies but does not have the requirements of Bolsa Familia, which help the next generation build better lives.

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Montes and Cordoba of the WSJ provide this exceptional account of corruption at the state level in Mexico. Ironically the very effort to reduce the power of centralized administration with PRI winning repeated elections and having a monopoly in power for many years, led to the decentralization and passing on power and money to the state governments in Mexico after the 1990's. But this was done without putting in the checks and balances required. Instead too much power was now concentrated in the hands of the state governments which appointed even the judges and officials at all levels including election bodies. Federal transfers of tax money to states increased 20 fold to $88 billion in 2016, according to this report.  The result 41 state governors faced corruption charges between 2000 and 2013, according to the Mexican Competitiveness Institute. This includes the state of Veracruz where state coffers are almost empty and there is no money to pay municipal bodies. The PRI governor of Veracruz Mr. Duarte supported president Pena Nieto, and was at 43 years age cited as the new face of the young PRI. This report  says he is nowhere to be found now that $2.5 billion in state funds cannot be verified. Other states are Tamaulipas, Quintana Roo, Coahuila, Sonora, where corruption charges remain. The Veracruz scandal is among the worst and is the focus of attention for the public in Mexico. At this point president Pena Nieto of PRI has about 12% popularity rating, lowest of any modern Mexican president.   ...

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Gates gives his perspective on the US role in foreign affairs and how the new policy of the US should be shaped.

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At the height of the market a year ago Citigroup acquired Nikko Cordial for 1.6 trillion yen ($17.7 billion). Now in a reversal of an earlier decision, after announcing a loss of $8.3 billion on Jan 16, 2009 for 4th quarter 2008, Citigroup will consider Nikko Cordial a non-core asset, meaning that it would be sold if a buyer can be found in Japan. Japanese banks are relatively healthy and there are propects for finding a buyer there.

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The prospects for a coalition government of the PD of Luigi Bersani and the parties supporting outgoing prime minister Mario Monti. This is the best outcome for the eurozone and for lowering Italy's borrowing costs on debt.

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Jeremy Stein tells Eisinger that it is important for the Fed to recognize when a bubble is taking place and take action including jawboning and regulatory action to limit bubble behaviour in capital markets. Fed chairman Yellen did this for social media stocks and bio tech sector stocks in 2014 by pointing out that that the rise in stock prices were excessive, resulting in a pullback.

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Economist Paul Krugman points out the risks of a trade war in the tariffs announced for steel and aluminium by president Trump. Yet he accepts that he advocated stronger action on China's currency in 2009-2010 when the U.S. economy was weaker. In the past on the TPP agreement proposed by president Obama, Krugman said that it would have an insignificant impact as most of the gains on trade were already made. Here Krugman is critical of the language used by president Trump about trade wars being "easy."  This is taken out of context though as president Trump is saying that it is easy in the context of a country enjoying a $100 billion surplus with the U.S., because that country is going to have incentives to maintain a good trading relationship with the U.S. Essentially this means that the steel industry in the U.S. benefits. China also benefits as it closes many of the older steel plants that led to overproduction. This would reduce overcapacity in China's steel industry, a problem China's economic planners see as a priority. China already is making the shift to higher technology products and this process will be accelerated, as it puts less emphasis on steel and metals as it did in its earlier stage of development. As a result contrary to textbook economics this has the potential to be a win-win solution for the U.S. and China in the long run. So little was done under the Bush and Obama administrations to manage trading relationships with other countries so that the interests of small communities across the U.S. were protected from unfair trade- that Reagan administration trade expert Robert Lighthizer took up the cause of the U.S.,workers in these communities. Surveys showed U.S. public opinion also had shifted among educated, professionals and middle class on this issue by 2015, against unfair trade that hurt U.S. interests. Robert Lighthizer is now the Trade Representative for the U.S. in the Trump administration. Reports in the WSJ about the discussion within the Trump economic council, show Gary Cohn favored not imposing the tariffs on steel and aluminum. Lighthizer advocated the tariffs and was able to convince the president.  For Trump this presents a win-win situation, as a mild response by China -and other trading nations that have enjoyed a favorable situation in the past -with its huge surplus and favorable trading relationship with the U.S. would present a win for the president. Economist Krugman accepts this when he says tariffs in the current context of the trading field- that is more favorable to other countries- are not such a big deal, only the use of such policy that is likely to endanger world trade.  As in much of the debate that takes place this adds to the headlines today yet provides delayed and limited relief to communities across the U.S. devastated by world trade as documented by experts who studied trade patterns and their effect on regions across the U.S.  As the WSJ points out in one report the trade deficit itself may continue to grow under president Trump because of other factors. The U.S. dollar surged 8% during the last 2 years of the Obama administration with the economic recovery underway. With Trump's election win the dollar surged another 3%. This may play a bigger role in the direction of the trade deficit than the new steel tariffs announced by president Trump. Workers and unions matter. As TPP pushed by Democratic party president Obama was opposed by the unions, and by the auto industry (workers and auto companies) in the midwestern states which suffered a hollowing out in the last decade. A WSJ survey after the election showed Clinton received 56% support from union workers in 2018 compared to 65% for president Obama in the 2012 election. Some of that erosion in support may come from Obama's TPP stand fervently opposed by the unions and workers in the auto industry. A similar situation took place in Ontario with hollowing out of the auto industry in this large industrial state in Canada and led to the rejection of the Conservative government and election of the Liberal Party under Justin Trudeau. This lesson is so far lost in the Democratic Party's debate.     ...

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During the early weeks of the Libyan people's struggle the Wall Street Journal was one of the rare voices that stood up for freedom in Libya, saying the U.S. had to have the will and was not so overstretched that it could make a difference working with its allies in NATO. It took some time for the Obama administration to make up its mind by which time the Gaddafi forces would have entered Benghazi. It was the leadership of Sarkozy of France and Cameron of Britain that made the decisive difference at the right time. And as the tide turned it was the young people of Libya who could be seen in the video footage who showed bravery against the organized heavily armed forces of the Gaddafi regime. The lesson from the U.S. support for the Libyan people's movement for democratic government is that the U.S. can make a moral difference and a strategic difference when it follows the right instincts that have guided the country since its founding.

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Comedian and politician Beppe Grillo, from Genoa, who leads the Five Star Movement party. This party has increased its support from 4% in 2011 to about 18% in recent opinion polls. Grillo is a moderate liberal who has benefitted from the unpopularity of austerity measures taken by prime minister Mario Monti and the rapidly declining support for Berlusconi's People of Freedom party after recent coruption scandals. He has opposed traditional politics of established parties since 2005 when he pulled together people over social media and the internet. Support for political parties in Italy is rapidly fragmenting with Berlusconi's party dropping to 17% in polls and no party having significant support. In this situation business leaders support a continuation of the Mario Monti government beyond the April elections if no party gets a mandate from voters. Grillo says his movement is similiar to other movements that oppose the euro and austerity measures such as the Marie Le Pen movement in France. It is against this background that the Social Democrats in Germany have united behind Peer Steinbruck, a former finance minister, who has the best chance against Merkel in 2013 elections for chancellor in Germany. Most of the difficult and necessary actions that Merkel and the German public have supported are already taken- the changes in labor laws in Italy, France's 2013 budget that targets 3% deficit in 2013, efforts of Italy, France and Spain to improve competitiveness- and capital markets continue to provide vigilance in this direction, creating a situation where Merkel may have exhausted her effectiveness. This creates an opening for a change in policy in the eurozone that offers more German flexibility on stabilizing the eurozone and supporting the embattled governments of Monti in Italy and Rajoy in Spain facing popular protest and not enjoying the kind of support Monti says France has from Germany....

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This editorial deserves an award for best editorial on international economic matters in 2011. The editorial, goes right to the point, when it says the French, the Germans, and the European Central Bank are deluding themselves if they call this weeks resolution of the Greece debt crisis a realistic solution. It is anything but a solution. The Journal calls it a French deception. It is unworkable because the main problem, the high ratio of Greek debt to GDP -which is now 155% and is expected to reach 170% by the end of 2011- is sure to get worse under the arrrangement designed in the interest of French and German banks. Under the arrangement French and German banks and other creditors will get to double their return from 4-5% today to an effective interest rate of 10% if Greece grows by 2% a year, on 49% of the bonds they hold. These bonds will be converted into 30 year bonds. This effectively doubles the interest cost for Greece in servicing this debt. On the other approximately 51% of the bonds the French and German banks would redeem the bonds for cash and a triple A, sovereign zero coupon bond. The Journal asks what is the point of making Greece's debt problem worse than it is now and calling it a solution. The austerity cuts are already expected to lead to a deep recession, something that is also happening in Portugal, leading to a worsening of the debt situation. Creditors are not sharing in the losses under this arrangement, as Germany and the Netherlands have insisted. As the Journal points out they are instead taking out half of their investment and doubling their return on the remainder. And the fears of contagion for Spain are not lessened, as financial markets can clearly see through this for what it is- unworkable and unrealistic. ...