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After the newly elected Mahathir Mohamad government in Malaysia suspended China infrastructure deals on grounds of the high cost, and straightening out Malaysia's finances, months of negotiations took place. The East Coast Rail Link project was renegotiated cutting the cost by one thirds to $10.7 billion or 44 billion ringgit from 65 billion ringgit. The renegotiation is part of an effort by China and countries that have borrowed heavily for infrastructure to provide transparency and improve financial terms for projects. This is to address criticism that the Belt and Road Initiative, which finances the projects under president Xi Jinping's policies, is not trapping countries with unsustainable borrowing and debt. China is now taking the initiative to correct these problems as promised by president Jinping at the conference of leaders from Asia and Africa, and Europe, in April 2017, in Beijing.

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Ron Johnson (R-Wisconsin) who seeks deeper spending cuts, Josh Hawley (R-Missouri) who sees Medicaid co pay for able bodied at 100% of federal poverty level as a "sick tax," Lisa Murkowski who differs on taxing providers, and other Congressmen and Women in the Republican party are opposing the new tax cut package of president Trump. Senator Rand Paul (R- Kentucky opposes the raising of the debt ceiling, and is also opposed.

Most of the main Medicaid cuts come after 2029 after Trump no longer is president, so that Republicans who want to see the shrinking of the Medicaid program so it meets only needs of the most needy, want to see faster cuts while Trump is president. And there are other Republicans in Congress who face tight elections and see big risks of losing their seats.

 

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Stefan Jacoby, a former head of VW USA, will be the new CEO of Volvo, after its acquisition with 100% ownership by Geely of China. Geely paid $1.3 billion cash for Volvo to Ford Motor, the original price was $1.8 billion but adjustments were made for retirement funds and working capital. Ford originally acquired Volvo for $6 billion. Ford has debt of $27 billion and will be able to reduce some of this debt wit cash from the Volvo sale.

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TThe Fed's intervention to buy mortgage backed securities, agency debt and Treasurys to ease credit approaches 1.25 trillion.

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The effort to shift China's economc growth away from the rampant overbuilding in housing and industrial capacity of the past to domestic consumption, and focus on meeting the demand for better medical care, quality of food, education and other quality of life products. China's leaders met at the Central Economic Work Conference in Beijing in Dec. 2015 to work out ways to make this shift so that growth rate of 6.5% and other goals can be met. Plans include reducing industrial overcapacity, dealing with overinvestment and unused inventory in housing, reducing financial risks from high corporate debt to GDP ratio approaching 160% estimated by Standard and Poors Ratings Services. By comparison the U.S. debt to GDP ratio is 70%. A steep rise resulted from the huge China stimulus program of 2008-2009, when the ratio was 98% for China. Experts such as Derek Scissors of the American Enterprise Institute are pessimistic about the prospects of successfully implementing reforms, saying reducing industrial overcapacity was a goal of the new Jinping Li-Keqiang leadership in 2013, but not much progress has been made in 2 years....

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The problems facing U.S. Speaker of the House of Representatives, John Boehner, as a government shutdown occurs in October 2013. Republicans and Demorats fail to agree on raising the debt ceiling and financing of the government. Boehner faces a movement in the Republican party led by Senator Ted Cruz of Texas for defunding the Obamacare law.

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Turkey's currency Lira dropped to 7.2 to the dollar on August 13, 2018, taking the drop in the currency in 2018 to about 70%. About 90% of Turkey's debt with foreign lenders is denominated in foreign currencies. Turkey is highly dependent on money from overseas to finance growth and credit. 

The risks increase with higher interest rates in the U.S. and the falling value in the Lira which makes it harder to pay off debt. Turkey faces loss of confidence from foreign investors as its relations with the U.S. deteriorate in a tariff war with the U.S. increasing the focus on factors long ignored by American and European investors such as its high dependence on dollar denominated loans.

Analysts say the problems in Turley are unlikely to be systemic for all emerging markets because Turkey's problems are unique with questions about the management of the economy and the authoritarian rule of president Erdogan.  

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Marco Rubio has shown an exceptional grasp of Latin America from his days representing Florida in the Senate, about a decade in the Senate when he has closely followed events and acquired a deep knowledge of Latin America. His answers at Congressional hearing were exceptionally good, and showed an ability and earnest desire to get good results for the Venezuelan people, sharing aninterest in the good for Latin America being a person of latin American origin who speaks fluent Spanish as a native language. Points made by Venezuela in answering questions from senators in the US Senate hearings- All of Latin America welcomed the US action to remove Maduro from Venezuela.  It affects Colombia and neighboring countries. Colombian rebel groups control parts of Venezuelan territory and operate from there.  Multiple administrations had deals with Maduro. Maduro kept none of the deals including the one with Biden for free and fair elections.  To be realistic in situations such as Spain, Paraguay, there were transitions before safe and fair return to normalcy and democratic government returned after decades of dictatorship. RUbio showed an exceptional grasp of the Latin Ameican situation and reminded senator Murphy that he had been in the Senate for decade and worked with the senators now on the other side to remove Maduro amd nothing had worked. Venezuela is a rich country , the most affluent in Latin America. It does not need money from the US. Before the Chavez dictatorship it was a country with democratic forms of government, and a country friendly to the US.  The action taken was a quarantine not a blockade. By controlling oil going out of Venezuela the lifeline for the country the US has control over its finances and the economy, budgets, the government finances. The immediate task was getting the oil out of the country as there was no place to put it and US had it sold at market prices not sent to China at a 20% discount for which Venezuela got nothing except paying off debt to China. The current authorites are cooperating with the US on the budget, they have to submit budget requests and the US approves it item by item and an audit agency is being set up including Ex-Im. Bank an other options to make sure the money is being spent on salaries and for the Venezuelan people. The money goes to an account for Venezuela at the US Treasury Department. In 4 weeks a lot has been accomplished. What happens in 6 months - for that actions are more important than words, it should be a marked improvement over today. Including setting up the US diplomatic presence in Caracas which means talking to the government on the ground, talking to civil society, talking to the Opposition.  ...

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France's public finances and how this affects the strength of the euro-zone package of 750 billon euros to support eurozone countries facing financial crisis. France has a ratio of government debt to GDP of 80%, with BNP Paribas forecasting it to go up to 90%. France's budget deficit is forecast at 8% for 2010. And with high taxes it is risky for President Sakozy to raise taxes. The government's target is to cut the deficit to 3% by 2013. Part of the plan is to close tax loopholes, unwind stimulus spending, and to address the social security deficit. Weakened by poor midterm election results and facing strong unions, Sarkozy's options are limited.

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The Economist points to a second hit from bad debt in the post 2008 stimulus binge of spending in China. This is after an earlier hit, that was absorbed as a result of high growth rates and high savings. About $420 billion was injected into 5 state owned banks since 1998, according to one estimate, as a result of the first hit to China's banks from bad debt. In this second round of bad debt, covered in more detail by David Barboza in the New York Times, and merely alluded to here, many bad loans to infrastructure projects were rushed through by local governments. The Economist considers this one of the successes of the state directed banking system, that loans were quickly made and projects started in the post 2008 crisis period; and expresses the view that this hit will be absorbed just like the last hit. However the more detailed account by David Barboza and in Business Week, points to the working of a system of incentives gone astray in a capitalist system without the necessary controls or regulation. Local governments used investment companies to take on loans, which were then used to prepare properties to be auctioned off at a profit and speculative prices to state owned companies in different industrial sectors. This is part of rampant speculation in China in real estate markets. Can China with its high savings and growth absorb a second hit? This depends on the magnitude of the hit and the size of the bad debt, which depends on how long this speculative market continues to operate, and how bad debt is hidden in the books. The difference this time is that large state owned companies in different industrial sectors are engaged in this speculation. The other difference is that the high growth rates in China depend on continued large trade deficits with the USA and Western Europe, something which is not likely to continue for long, as consumers in Europe and the USA with high debt are becoming cautious spenders. This suggests that China, like the US with the mortgage crisis, faces the same effects of unregulated or uncontrolled speculative behaviours, that can endanger the banking system....

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Italy raised 18 billion euros in a record auction on Oct. 18, 2012, meeting its needs for the rest of the year. Italy's yield dropped to 4.64% on Oct 18. Spain raised 4.6 billion euros at 5.32%. Italy sold most of the BTP Italia bonds to Italian citizens with a 4 year bond linked to Italian inflation and designed for Italian retail investors with a new eBay type internet platform, including a loyalty premium of extra 40 basis points. Italian retail investors have 8 trillion euros in net private wealth and household wealth in Italy is more than 4 times the sovereign debt, according to the Bank of Italy. This is a big difference compared to Spain, because the interest on the bonds remains in Italy for consumption and investment. Spanish households are highly indebted after the housing bubble.

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Indian finance minister Sitharaman announces Rs. 60 billion ($857 million) in equity for the National Investment and Infrastructure Fund to provide Rs. 1000 billion  ($14.2 billion) debt financing for infrastructure to 2025. This is part of a wide ranging stimulus 3.0 package for creating jobs, providing aid to borrowers during the pandemic, aid to farmers, and aid for the informal economy including street vendors and small retail. With the largest population in the world the Indian Ocean region of India, Bangladesh, Pakistan, Burma, and Indonesia from the former British and Dutch empires, requires a resilient response to the coronavirus pandemic. This is crucial for the future revival of the world economy. 

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Fiat plans to pay Chrysler $1.27 billon to increase its stake to 46%. This will happen after Chrysler refinances $7.1 billion in U.S. and Canadian debt to pay off government loans. A debt offering is expected in coming weeks. Fiat's Sergio Marchionne sees this as critical to the next step forward for Chrysler- the speedy approval of $3.5 billion or more in low interest loans from the U.S. Department of Energy for projects that increase fuel efficiency. Marchionne would like to leverage as much as he can from DOE as they will be essential to Chrysler's investments in improving the fuel efficiency of its vehicle lineup. Chrysler paid $1.2 billion in interest on its debt in 2010. Much or all of the $1.27 billion from Fiat will be used by Chrysler to reduce government debt. Chrysler will not use any unused funds from the government. Chrysler is also planning to add a revolving line of credit for $2 billion. By the end of 2011 Fiat will add another 5% stake to bring its stake up to 51%, and make it the majority owner. Fiat and Chrysler are operating as an integrated company. Marchionne says it makes little sense to have separate legal entities for Chrysler and Fiat, as the two companies are already developing, building and selling vehicles as one company. The Chrysler financials will be consolidated with Fiat's....

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Robert Frank, an economist at Cornell and visiting Professor at the Stern School of Business at NYU, says this deficit increasing our debt burden is entirely different from the way in which the Bush administration increased the national debt. During the last 8 years the Bush deficits increased the national debt by almost $5 trillion. But people went for larger mansions, and consumers went on aconsumption binge, and the Bush tax cuts were skewed to help the wealthy. Now to address the economic crisis a similiar amount of about $5 trillion will be needed but it will be spent quite differently. Money spent on ropads and building infrastructure that is needed is money well spent on any dimension. Especiallyfor America's crumbling roads and bridges and highways. If postponed these would cost more or twice as much to fix. Frank's point is that alot depends on what you do with the money. At recent interest rates servicing $10 trillion in debt costs about $400 billion annually. He says thats quite manageable. Just by instituting agasoline tax of $2 agallon as the Europeans do and are not alot poorer dfor this, the US could generate $100 billion ayear. When Americans are using mass transit in the largest numbers in 50 years, it also makes sense to build better faster transportation systems between major cities, like the high speed trains in Europe....

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Samulelson points to the problems of pushing college-for-all. He compares it to the misguided housing policy that sought to promote housing access to all Americans including those who could not afford it by lowering requirements on credit and downpayments. Problems include student debt without job prospects, inadequate vocational training, and lowering educational standards at all levels including high school and college. Compared to Germany and other European countries the U.S. does poorly in providing vocational training and relating education in college to jobs through apprenticeship and other training in companies. Combining classroom and on-the-job training is more advanced in Europe. As sociologist Rehman of Northwestern University points out its important to set different pathways to rewarding careers. In 2008 the U.S. had only 480,000 workers or 0.3% of the labor force who were apprentices, according to Robert Lerman of American University. Useful to note is also that only 69% of U.S. jobs in 2010, required a post-high school degree, according to the Labor Department. Putting everybody on the college track, belittles those who do not finish college, ignores the need for vocational skills and technical skills in jobs, and puts the diploma above skills and knowledge gained.. Taking the approach to an extreme hurts young people in the job market and reduces America's competitiveness. This is similiar to what happened in housing policies that sounded good but actually devastated the financial condition of minorities that it was supposedly intended to help, as seen in high foreclosure rates....

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Japan is suffering from deflation, the public debt is a record 883 trillion yen or $9.78 trillion, and Premier Hatoyama was unable reduce spending. Yet the Japanese yen went up by 4% in May 2010. It went up by 11.5% vs the Euro. The causes lie in the weakness of the U.S. and European economies and the huge trade surpluses from Japanese exports, over $28 billion in 2009.

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Simon Johnson and Peter Boone say not taking forceful action with the large banks- taking them through bankruptcy and restructuring procedures as advocated by senior Federal Reserve officials like Peter Hoenig- will only lead to irreversible damage. The current Geithner-Summers policy being followed by the Obama administration is simply to hope that by fiscal stimulus and economic recovery the banks may be brought to sustained profits and be able to muddle through their financial problems. This Johnson argues is not likely to happen and the cost will be higher debt levels for America, irreversible damage as America faces low debt and financially stronger countries in Asia and sees its position in the world weaken. The muddle through policies for banks of the Obama administration have little prospects in the face of an IMF estimated $275 billion shortfall in capital on balance sheets at large banks (from the IMF Global Financial stability Report). Without aggressive action on the banks America's recovery and renewal will only delayed....

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Castilla-La Mancha includes the region around Toledo, Spain. It has an unemployment rate of 27% for the 1st quarter of 2012, up 5.4% from 2011, faster than the increase of 3.1% to 24.4% for Spain. Estimates from the University Carlos III in Madrid show economic growth contracting with GDP decline at 3.1% annual rate by the end of June 2012 for Castilla La Mancha. Part of the problem was the lack of credible accounts by the previous administration. Unpaid bills to suppliers were not included in the accounts for the region. When Maria Dolores de Cospedal of the Partido Popular became the president in May 2011, these unpaid bills were discovered and led to the doubling of the region's budget deficit to 7.3% for 2011. Cospedal sees the austerity cuts she is making as a long term approach to preserve education and healthcare. In an interview with Sara Schaeffer Munoz of the WSJ she says reducing debt is the first priority, so that interest rate premiums on borrowing can be brought down. Debt for Castilla was 17.2% of GDP in 2011, according to the Bank of Spain, it was 16.6% in the first quarter of 2012, among the highest of Spain's regions Ms. Cospedal says she wants growth too, but insists that Spain cannot get growth as long as it is sinking in debt. Moody's Investors Service says Ms. Cospedal is strict in executing the budget- a new second hospital slated to be built for 150 million euros in Cuenca with population 56,000 was cancelled and other cuts are proceeding- and Moody's did not include Castilla in the downgrades of 7 Spanish regions in June 2012. ...

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New rules enacted after the Reserve Primary Fund broke the buck in the 2008 financial crisis would help prevent another problem for money market funds. Money market funds must keep 30 percent of their holdings in securities that can be converted into cash in 7 days. Another factor mitigating the impact of U.S. money market funds holding about 50% of their assets in European bank debt, is the action taken by the money market funds to reduce their holdings of this debt and shorten maturities. According to S&P estimates of the 500 U.S. and European money market funds rated by S&P, 80% of European bank holdings is limited to 3 months or less, and 95% to 6 months or less. Vanguard's chief investment officer says the situation would have to be one of a very rapid decline, and not just Greece but also impacting Spain and Italy for these debt holdings to result in losses for U.S. money funds.

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Simon Nixon of the Econmist on the report's findings for the future of the world economy. He points to the heavy debt overhang for individuals and banks that will take years to overcome resulting in entrenched unemployment and sluggish growth, somewhat reminiscent of Japan's years of stagnation after its bubble. The entrenched unemployment he argues will permanently lower the economic potential of developed countries of US and Europe. Public debt will rise so that private debt can fall. Bank lending that is cautious will only slow any recovery for a long time. And the grim facts he presents are that about 25 million jobs will be lost in the 30 rich countries of the OECD before all this is over during the coming decade, and several million jobs probably will never come back. Auto manufacturing and manufacturing in general is an example where some jobs lost may never be regained. There is no room for complacency here.

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Debt and deficit problems of the U.S. state of Illinois with political handling of the state budgets making the crisis worse.

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The U.S. Treasury Dept reported that Japan's holdings of Treasurys increased to $1.12 trillion in August 2012, compared to China's holdings of $1.15 trillion. Japan increased its holdings as it continued its effort to stem the yens rise. China's holdings are declining.

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The euro moves closer to a fiscal union. See the interview with French finance minister Lagarde. This mean conditionalities to loans made to member countries in financial crisis. The Journal editorial asks how readily will the Irish or Spanish people accept conditions, reforms and tax increases set by German and French leaders. EU leaders have decided that the recent change does not require approval in eurozone countries. The option of debt restructuring with longer debt repayment terms and haircuts for investors, with German and French banks accepting losses.