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Chancellor Merkel tells the newspaper "Sachsische Zeitung," that she sees a follow through on policies on refugees after reestablishing control over EU borders as one of the lessons learned from last years refugee crisis. This has reduced the flow of refugees and Merkel says the process of deportation of non-German nationals who had no residency permit had to be done rigorously and speeded up.  Having said this Merkel defended her policy on refugees as "coherent," and was clear about it- "I do not see a change of course, but coherent work over many, many months." Responding to Pegida and anti-immigrant sentiment in Dresden, Merkel said it is important to remember the lessons of history, that "we are the people" slogan used by the far-right is misplaced, that in a free society "we all are the people."

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Bernanke's plan to address the deep downturn is very aggressive and he is pulling out all the stops. This includes the purchase of mortgage backed securities, Fannie Mae and Freddie Mac corporate debt and other assets, Since it stated its intention in late November to buy such securities, the 30 year mortgage rates have fallen to 5.2% from 6%, and refinance applications have tripled. Now the purchases will be greatly expanded. See the related link to this in Hubbard and Mayer article based on their research paper, in the WSJ, that shows that at a mortgage rate of 4.5% the housing market prices could stabilize. Next step the Fed will, starting early 2009, pump money into markets for student, auto, credit card ansd small business loans in hoping to bring life to those markets. How much money is involved? Quite a bit. All told the Fed's assets could add up to $5 trillion says Ed Yardeni of Yardeni Research, up from $2.2 trillion now. Its these sweeping moves and decisions that have overshadowed the December 16 announcement cutting the target federal funds rate to a range from zero to 0.25%, the lowest in its history. Whats the thinking behind this? Coy of BW points to Bernanke's research on the depression years and the lost decade years in Japan. In 1999, in a book he contributed to, Bernanke referred to Japan's monetary policy and passive approach as a self induced paralysis, including all the zombie loans that were allowed to continue on company books and no effort to clear up the bad assets quickly. He always thought highly of the aggressive approach taken by Franklin Delano Roosevelt, and felt that more tools available and a better understanding of the market system since FDR's day enabled a lot more actions to be taken to reverse the kind of steep global downturn that might occur. Yardeni's view is that even though this huge asset buildup could lead to inflation down the road, the economy in the medium term faces a deflationary environment, and the only way to cope with this series of bubbles bursting is to create another bubble, rather than risk anything going seriously wrong. Basically Bernanke is making an assessment of the current situation, and he sees bad credit situation getting worse, bad unemployment situation getting worse, consumer spending falling off and getting worse, continued home foreclosures and falling prices, the transition between administrations and lack of policy direction for a few critical months complicating things, and he sees the economies of all trading partners in Asia and Europe weakening in great speed, and sees very tough years for 2009 and 2010 no matter what the administration and the Fed do. Not enough aggressive actions to forestall the worst is as bad as inaction in Bernanke's view. And with all the aggressive moves, including the $1 trillion stimulus and infrastructure spending to create 2.5 million jobs that Obama administration plans, the US and global picture for the next 24 months will still be a long uphill climb. So the risks for Bernanke are all in the region of not doing enough and not doing it vigorously and speedily to get the best results. ...

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Nouriel Roubini says nationalization is the right solution. Similiar to action taken in Sweden, where the government nationalized the banks, and then after fixing them privatized the banks. He thinks about six months from now would be good timing, as most of the banks will be insolvent by then. The government does not have the risk of disturbing other solvent banks, if at that time it just moved in and nationalized the banks. Obama has cover, because already Republicans like Graham are endorsing nationalization as an option. And Republicans would prefer nationalization over putting in trillions of dollars into banks, and letting good dollars go in after bad. Roubini says that between guarantees, liquidity support and capitalization, the government has provided between $7 trillion to $9 trillion to help the financial system. Defacto the government is already controlling a big chunk of the banking system he says. This would just make it official. Another reason for doing this, is that the earlier solution of taking one failed bank or financial institution and merging it with another, as was done for Merrill, Countrywide, Bear Stearns, WaMu, is like merging two zombie banks. The result is not a stronger institution but one that is just as weak as before. In his picturesque language he says its like having two drunks trying to keep each other standing. He would like to see the big bank split into three or four pieces, creating a number of regional or national banks that are stronger. Because nationalization has become the N-word he says, it could be referred to as temporary receivership. Has Roubini been more prescient than others? No, says Roubini, a number of other people got it right. Robert Shiller on the housing bubble, Steve Roach on asset and consumption bubbles, Ken Rogoff on global imbalances in the current account deficit. He says he put the dots together and gave a more fleshed out picture. This interview was conducted by a fellow Professor of Roubini's at the Stern School of Business of New York University, Tunku Varadarajan. What about Greenspan? I think he says, a belief in market economics led to an excessive ideological belief that there are no market failures and no issues of distortions of incentives. "Central banks were created to provide financial stability. Greenspan forgot this, and it was a mistake. I think there were ideological blinders, taking Ayn Rand's view of the world to an extreme." Did the media play its proper role as this situation developed with all its inherent dangers, asks Varadarajan. In the bubble years everybody became a cheerleader, and the media became a cheerleader. The tough questions were not asked, and there was a failure there says Roubini. They failed in one of the duties of good journalism. The Masters of the Universe were on the cover, the imperial CEO, private equity, and others, no one asked how is it that this guy is producing such high returns each year, is it because he is so smart, or because he is taking on so much risk that he may face bankruptcy in two years? ...

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What Handan Iron and Steel in Hebei Province 300 miles south of Beijing and ThyssenKrupp in Dortmund, Germany, have in common. The transplanting of Germany's aging defunct iron and steel furnaces and plant to Handan, boxed and crated away- its unreal that in 1998 Handan Iron and Steel bought and transferred an aging polluting plant to a city where the steel works are located in China which has 8.5 million residents. When years later the steel works were debated to be moved to a distance away from the city with Baoshan Steel, the decision was made to instead put a new plant there instead. The solution was to make pollution payments to residents of Handan. It was Mao's dream to build a steel industry in Hebei province ,which has large deposits of iron ore and coal and a rail line. Couple of questions come up to mind- one why did the first steel works go up right in Handan, and same is true of Dortmund, labor supply perhaps but couldn't homes be built nearby instead and these plants located away from cities. Second the deal for bringing the ThyssenKrupp plants was as recent as 1998, by this time China was already a big steel producer (producing more than the US by one estimate) and in a few years Chinese steel production was to exceed the US, Europe and Japan combined. With steel production already on the rise why didn't China move more carefully. Some of the Thyssen Krupp assets were built only a few years before 2000 and met stringent environmental control. China bought these.. Why didn't China pick out the best assets instead of old aging blast furnaces. The possible answers are that they were available at cut rate prices, but were they worth it. The second is that Hebei must be competing with other parts of China, and there wasn't a rational allocation of capital as would happen if a sophiticated company like a Mittal or a Tata Steel is involved. Is China operating on a outmoded concept- nationalism, competition between provinces with local government officials running the show? The other question is that in the case of the automobile industry a different pattern is seen, the most modern technology was selected , and in the case of Cherry, the most recent technology was selected for manufacturing cars, then why was this same pattern not adopted in the case of steel. In the end China has a surplus of steel mills, which makes this rush into steel production without carefully thinking through this appear to have been a mistake. The visual picture if one flies into Dortmund of manmade lakes, green park areas and residential housing and shopping from the $22 billion the EU and Germany are investing to turn the Ruhr valley region of Dortmund into a centre of education, technology and tourism now contrasts sharply with Handan in Hebei province. Can emerging countries do better, build manufacturing for jobs but keep living conditions in mind, be patient and work to achieve the best overall results, and build education, technology, appropriate for their own situation. ...

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People with doubts about Obama and McCain being agents of change or just bearers of the latest popular slogan for electioneering, would benefit from looking at the details gathered by the New York Times about the two candidates ties to lobbyists. Obama is second only to Senator Dodd in the amount of donations received from employees and PAC's of the 2 companies Fannie and Freddie. Mr McCain's campaign manager, Rick Davis, is a longtme lobbyist, and previously was head of Homeownership Alliance. Homeownership Alliance is a coalition of banks and housing industry interests led by Fannie and Freddie to counter another organization FM Watch, which was an alliance of financial institutions and lobbying associations that wanted to even the playing field against Freddie and Fannie by challenging the implicit government guarantee that allowed them to borrow funds at lower rates. And both candidate's vetters for vice Presidential picks have links to Fannie. Its former chairman, James Johnson, initially led Obama's search committee and Arthur B. Culvahouse Jr., McCain's vetter was a Fannie Mae lobbyist. For McCain, confidant and adviser, Charlie Black, and deputy Finance Chairman, Wayne L. Berman, lobbied for the 2 companies. For Obama, Robert Tsien, Freddie Mac VP, and directors. William Lewis , Brenda Gaines, a Chicago businesswoman, come up as names of contributors. There are so many such names right at the top of these two candidates advisors, that it makes one wonder seriously who are these people fooling when they make statements about Fannie and Freddie- like the one made recently by McCain about Fannie and Freddie enriching their executives by millions of dollars while things were going downhill, and the picturesque phrase "going to hell in a handbasket". And did he talk to Rick Davis about this. And Obama did he talk to James Johnson about this, and Brenda Gaines? One, McCain is a maverick yes, meaning he is independent, and the other can talk intellectually and excite young people about the future, but its a thin veneer, when all is said and done both promote their careers above anything else, and the difference is in degrees with one perhaps more than the other. And people have short memories. The Times reminds us that McCain was one of the "Keating Five" senators investigated by the Senate, accused of interceding with federal regulators for the operator of a failing thrift and received a rebuke. This is what Paul Gigot, who as editorial page editor of the Wall Street Journal has directed the investigative reporting on Fannie and Freddie for years, says in his recent column about all the dishonesty and failure and efforts to corrupt the whole political system across the political spectrum with lobbying and donations and tactics. In a note of pessimism he says "not that either presidential candidate is interested." Quite a comment on the political system. Which is also why Vincent Reinhart, who headed the Monetary affairs section at the Federal Reserve, when asked about the bailouts of Bear Stearns and of Fannie and Freddie, and the help Detroit auto companies are seeking, on Bloomberg News on September 8, 2008, said that "free markets is a thin veneer" when things really get rough. ...

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Improvements in birth rate and more immigrants in Germany are making the demographic picture look better in Germany. About 13 million people are expected to reach retirement age in just a few years, according to Prof Enzo Weber, Institute of Employment Research. This means 13 million new pensioners. Birthrate today is about 1.4 children per woman. At this level of birthrate and even a low rate of immigration of 100,000 per year Germany's population of 83 million today would decline over time. Between 1990 and 2008 more people left Germany than came in with a net outflow. Some level of immigration would be the only way to keep the level of people in the workforce of 43 million today to become stable in the future. This would be needed to support the increasing number of pensioners. Yet the general aging of the population is expected to continue. And a high level of immigration in too short a time such as from the Syrian refugee crisis creates other tensions in the social fabric of society. Germany's very homogenous society faces a challenge that goes beyond the politics of the refugee crisis of today. Too many immigrants in too short a time is not the solution, immigration has become too politicized in today's context, good and early integration of immigrants through language and culture training needs to be established. Prof. Weber points out that the influx of immigrants from Southern and Eastern Europe has helped the labor market, and there is no reason that the labor market could not dry up with the number of people retiring soon. Tackling that will involve making family and career life choices easier and enabling flexible work-life choices, increasing retirement age, and some level of healthy immigration. A demographic summit will be held on March 16th in Berlin to look at the problem. ...

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Joseph Stiglitz describes policies and programs of the Obama administration that favor banks and avoid a government takeover of over leveraged and badly managed banks in the U.S. President Obama's policy transfers financial assets to banks on highly favorable terms even though some of the banks made bad decisions and highly overleveraged assets creating the 2008 global financial crisis. The policies avoid a government takeover of banks, policies which the U.S. aggressively pushed for in other countries such as S. Korea during the 1997 financial crisis with Rubin, Summers and Geithner at Treasury. These policies would come under strong criticism because it rewarded risk taking and kept in place an incentive system that led to such behaviours- creating "heads I win, tails you lose" psychology. It also delinks the performance-reward relationship that is the basis of free enterprise in western economies. A problem that would be left from the crisis and the Obama administration's response to it is "Too-Big-To-Fail," with banks larger than before. The FDIC and U.S. Fed's plans for banks to have living wills for an orderly windup under Dodd-Frank legislation only goes a part of the way in tackling this problem. In the U.S., and in Britain, France, Germany, Switzerland, the related problem of high bonuses continues into 2014, with RBS bank in Britain one of the egregious examples and highly unpopular with the British public. The lack of similiar government help to homeowners, advocated by Reagan economic advisor Martin Feldstein and FDIC chairwoman Sheila Bair from the beginnings of the crisis stands in sharp contrast to the response of the Obama administration. See the links for Barr, Feldstein and Hoenig. In an ultimate irony from the crisis handling much of the damage from foreclosures was done to minorities which supported the administration. ...

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Economic forecasts expect economic growth to slow to 7%. Inflation has reched a high of 11% in India. With rising interest rates and large government deficits India's economic growth is slowing.

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Troubles at UBS including $18 billion in writeoffs and $80 billion exposure in risky securities on its books.

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BMW's CEO Reithofer says in a conference call that the company will redirect cars from the USA to China and Russia and other countries because of the currency exchange rates and unfavorable market conditions in the US. These market conditions caused a236 million euros charge to compensate for the falling value of second hand vehicles and potential payment defaults on loans for leased vehicles in the USA. At Daimler you see a 491 million euro fall in the value of Daimler's remaining 19.9% stake in Chrysler LLC showing up in 1st quarter results but also similiar to BMW one sees a 151 million euro writedown to cover the falling value of cars that were leased to customers. This is from earnings announcements by Daimler and BMW.

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Collapsing demand for used sports utility vehicles.

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Goldman Sachs sees the unemployment rate peaking at 6.4% in late 2009.

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Dave Shiflett, who helped Trump write the book "The America We Deserve," in 2000, describes his experiences working with Trump during that period. He says Trump is very different now with his strident tone and disdain for Bush and Clinton as candidates representing dynasties from the past, and willingness to use fear of terrorists for electoral advantage, calling some other candidates pathological liars. At the time in 2000 Trump preferred a civil tone. Now Trump revels in making statements about other candidates, women and journalists. He is taking full advantage of the public's dissatisfaction with political correctness and the lack of credibility of elites running the country, says Shiflett. What he finds disturbing is Trump calling good, hardworking people "losers," with no consideration of the advantages he has enjoyed.

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Spain released reports by audit firms that showed 62 billion euros would be needed to recapitalize the affected parts of its banking system. This is below the 100 billion euros in rescue funds offered by the EFSF, the eurozone rescue fund, in loans to the Spanish government. The Spanish government is pushing for direct aid to the banks to cut the knot between the banking risk and sovereign risk that is pushing up the yields on Spanish bonds to 7% in June 2012. Spain's 3 largest banks will not be accepting aid funds- Banco Santander, BBVA, and La Caixa.

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Goldstein at the Energy Policy Research Foundation sees a moderation in demand for oil holding the increase to less than 1 million barrels a day. Goldstein sees improvements in crude oil supply, spare refining capacity,and product inventories which should help moderate prices. A lot depends on how the slowdown in the US affects Russia, India, China and Brazil. China's export based economy is likely to be affected and India and Russia to a lesser extent. Already the stock markets worldwide have come down in synchronized fashion in January 2007 leading to action by the Federal Reserve in the USA. There is likely to be a slowing down worldwide with Europe and India and Russia doing better than the USA. The USA may already be in recession. On the supply side the investments in Saudi Arabia and other places in OPEC and production increase in Russia should lead to supply increase of 2.5 million barrels a day according to analysts. At these supply and demand levels prices could range from $65 to $80, with a consensus of $80 under present conditions. There is a possibility of it going down to the $60 range if global economic conditions get worse and consequently demand decreases more. A price in the $60 range will still be needed to increase the incentives of exploration and production of new oil sources and to pay the higher costs of exploration and drilling for oil, especially in remote difficult locations like Russian Siberia and in deep sea offshore locations....

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Michael Powell of the NYT shows what is wrong about the Olympics model of the IOC having host cities build costly facilities just for a two week period. Cities that have suffered paying for the Olympics in recent memory are most strikingly Athens, Greece, and some observers say the Greece crisis started about the time the Olympics were held there. In Greece as in Rio, corruption, and mismanagement, are major issues. In the case of Rio the Olympics were held following a time of widespread protests as the economy hit a recession, and corruption scandal at Petrobras and in the government led to public anger. Most striking is the fact widely reported that the Rio government does not have enough money to pay salaries and much of the investment in Olympic infrastructure is not going to be available to the working class, middle class, at a time when basic public services such as clean water, good bus services, environmental pollution, significant shortages in affordable housing remain unaddressed. Bolsa Familia program of the socialist Workers Party helped the poor, yet the middle and working class have suffered with misspent funds, and mismanagement of the economy. Powell does well to show how things could be done better than they are now. He says he applauded the Bloomberg plan to build swimming pools and kayak routes in different parts of the city, in city parks further away where the middle and working class could use these facilities. This did not happen at the Rio Olympics. It also shows that the IOC could also get into this instead of being some distant organization, that simply hands out this gift called the Olympics and stringent requirements. What if the IOC also says it wants to see ways in which the facilities will be later available to the broad public, so that swimming pools and other athletic facilities, including housing and transportation systems are then available to the people in different parts of the city. Rio de Janeiro University has seen large cuts in pay and services. It took Montreal decades to pay for the Montreal Olympics. Sochi facilities will not be used for the large part by the Russian public, more painful because of the Russian deep recession similar to the Brazilian deep recession. Olympic host cities should be required by the IOC to show that the facilities built will be usable to the maximum degree by the broad mass of the public, finances are stress tested for recession in a country. At this time citizens of cities such as Boston and Oslo have taken up these things- as the IOC takes no responsibility and host governments are giddy about showing off their country- and pulled out. Least valid of all is the notion that the developing countries are being discriminated against. Look at all the empy stadiums in the far north of the country of Brazil in the World Cup, and you realize there are better ways to take pride in a country- how about matching your transportation infrastructure with that of China, some bullet trains, some new subways in large and midtier cities, done so as to give broad access to the public at affordable prices for transportation? India is a large and now forward looking developing country, a young population with tech and infrastructure dreams and 4 medals in all in the Olympics. Does it make more sense to match China's success in transportation infrastructure with bullet trains, new subways and road building programs, and to build athletic facilities in every high school and college in the country matching the U.S. and Britain,  especially for girls, or to seek pride in putting up an application for a gift from the IOC? ...