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This WSJ editorial says the Corker-Cardin compromise that requires the U.S. president to submit any nuclear deal with Iran to the U.S. Congress for debate, is the best option for both Democrats and Republicans who are skeptical of such a deal. It says amendments by senators Cruz and Rubio will not be effective. What the Corker-Cardin compromise developed by senators Corker and Cardin of the Foreign Relations Committee accomplishes, is letting the American people through their elected representatives get a full and complete debate on the merits and demerits of the deal. Democrats in the Senate are also concerned about their election chances after Mr. Obama leaves office, and will want to have a fair debate of the pros and cons before voting, says the Journal. This debate will bring more light to the questions that worry critics the most- how will compliance by Iran be secured, and can snapback sanctions work if China, Russia and other European nations go the other way. Congressional review puts a higher level of scrutiny for any agreement before it moves forward. A requirement that the government submit a review every 90 days on compliance to Congress also gives president Obama's successor a chance to reassess the situation....

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Greg Ip provides useful insights into the nature of the economic recovery in Britain compared to the U.S. by 2015. The recovery in Britain has done better than in the U.S. in job creation, but has lagged behind in productivity gains. The labor force participation rate is 72% in Britain compared to 68% in the U.S., going back up to 2007 levels in Britain, whereas in the U.S. it has steadily declined with some older working class Americans too discouraged to look for work and left behind. Stagnant wage growth is a major issue in Britain, more so than in the U.S. where wage growth is slow. Economic austerity is not the main cause of the economic difficulties as the coalition government of prime minister Cameron relaxed earlier goals for austerity by 2012 with tax revenues and growth below forecasts. The structural budget deficit has been reduced by 6.6% of GDP since the peak, and the Office of Budget Responsibility estimates the UK economy was 1.5%-2% smaller by 2013 because of the austerity policies. Britain was also affected by the eurozone crisis to a larger degree than the U.S. Productivity remains a long term challenge- with needed investments in housing, education and infrastructure, improved lending for new business, and higher tech improvement exports....

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Gretchen Morgenson sees systemic risk looking ahead beyond 2013 in the $4.6 trillion repurchase obligations market or repo market. Problems in the repo market caused the collapse of Lehman Brothers in the financial crisis of 2008. Bernanke, Dudley, Bair and other finance officials have referred to the risk in the repo market which have not been reduced since the 2008 financial crisis. In the repo market money market mutual funds provide short term funding to banks accepting collateral such as mortgage securities. These are overnight loans made to banks and other financial institutions based entirely on trust. During normal functioning the trades are rolled over. The risk is that the trust disappears in a few days as happened for Bear Stearns and Lehman and the firms not able to obtain this short term financing. This is a very unstable form of financing and Lehman depended on it because of the low cost and not having to set aside capital for the trades. Basel III rules require that banks set aside capital against the assets they finance inthe repo markets, and a recent JP Morgan report says the 8 largest banks would need to raise $28-$34 billon in capital for their repo business....

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JP Morgan Chase bank's tentative deal with the U.S. Justice Department includes agreement that the bank will not face penalties for the problems at Washington Mutual and Bear Stearns, financial companies acquired during the 2008-2009 financial crisis. The failing firms were acquired at the urging of federal regulators and management at JP Morgan sees holding the bank responsible for the culture and behaviour of management at Washington Mutual and Bear Stearns as not a fair response of regulators. What the deal does do is include provisions for covering losses of investors. Of the $13 billion legal settlement JP Morgan will provide about $3 billion for institutional investor losses on mortgage bonds issued by JP Morgan, Washington Mutual and Bear Stearns. $4 billion goes to the Federal Housing Finance Agency, for misleading the regulator about quality of mortgages sold to Fannie Mae and Freddie Mac. Another $4 billion goes to homeowners for losses suffered. $2 billion relates to penalties for JP Morgan's own behaviour during the years leading to the financial crisis. Attorney General Eric Holder and the Justie Department see the settlement with JP Morgan Chase as a template for action against other banks for behaviour leading to large investor and homeowner losses following the 2008 mortgage financial crisis....

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The Dutch model for counterinsurgency which intertwines the civilian efforts with aid workers working inside the military, and military work focussing on security for the people so that economic development projects can go on, is an inspiration for the US effort. It has also reduced casualties for the Dutch. Only 19 deaths have occurred for the Dutch for 2000 personnel employed since they deployed in Uruzgan province in March 2006, where 350,000 Afghans live, according to icasualties.org. Sec of state Hillary Clinton describes this 3 D effort of defense, diplomacy, and development, as the model for her own efforts and that of the Obama administration. Dutch soldiers are ingrained in their training for this mission that their main work in Afghainstan will be economic development. The aid workers work closely with the soldiers and the commander Col. Gert-Jan Koolj says over time the focus has been on pure development. In fact diplomats from the Dutch foreigh ministry help to command the Dutch team in Uruzgan. One problem Clinton is facing is the shortage of civilian personnel to work in provincial reconstruction teams. About 500-600 more civilians are needed to complement the additional 21,000 troops that are to be added in 2009. ...

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Krugman questions Bair's idea of the aggregator bank buying up toxic assets of the banks because the government may be assuming these huge liabilities at taxpayer expense to shore up shareholders. He questions whether these banks will not continue to be the zombie banks, that they are today, if the so called toxic asets are priced in today's market. The idea that today's market prevents these assets being priced at fair value may be deceiving he says. As the economy deteriorates, these banks even after the government at great expense buys up "toxic" assets, may still be losing money and remain that way for years, essentially zombie banks. Better he says for the government to face up to reality and nationalize these banks and then do what the Resolution Trust Corporation did with the savings and loans in the 1980's, which is clean up these banks and sell them after fixing them to new owners. The government might end up with amuddle headed approach that looks like the Resolution Trust type of action but without taking over the banks end up with something else. All because nationalization is thought of among Republicans, Democrats and Obama's people as some kind of dreaded word, when these banks are already dependent on the government for survival....

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A further drop in the value of the ruble would increase the cost of servicing the $500 billion in foreign debt. Fitch downgraded Russia's credit rating to BBB, the main concern being the drop in foreign exchange reserves, down by $210 billion to $390 billion in 6 months. Forward rates on the ruble imply a further depreciation of 20% in 12 months. Russia last week abandoned its committment to stick to the 2009 budget. After the first $29 billion bailout for banks another $40 billion has been assigned for the banks. All this has shown clearly that for Russia the job of reforming the economy, of changing its dependence on oil and commodities, and shifting to manufacturing and high tech industries has hardly begun. As a writer at the Financial Times put it in a CSPAN talk show, Russia is like 120 million people gathered around a oil wellhead. Or as another writer puts it, it remains a dangerously leveraged bet on the oil price. This has ominous implications for Russia, and serious social implications in terms of unemployment, social unrest, and a crisis of expectations, as for the second time in the lives of this generation hopes are raised only to be disappointed....

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The FDIC had $19 billion in its fund that insures consumer's deposits at the end of 2008. A bill in Congress by Christopher Dodd, the Senate Banking Committee chairman, gives the FDIC access to $500 billion till the end of 2010 if the Fed, the President and Treasury secretary support that, and $100 billion without that approval. The FDIC proposed raising the fees banks pay into the deposit insurance fund to buildup the fund, that has been depleted by bank bailouts like the one at IndyMac which cost $10 billion. But banks protested because it comes at a time when bank's are already in a bad condition. Under a 1991 law the FDIC can borrow from the Treasury amaximum of $30 billion. The access to $500 billion is meant to let the FDIC act as another source of funds to address systemic risks that arise in the future, in addition to the $700 billion already approved by Congress for that purpose. In an interview Sheila Bair, head of the FDIC, said that a change in the law would "ease the mechanics of how seamlessly we can access our lines of" funding. I'm the kind of person who likes to be prepared for all contingencies."...

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Ma's big margin 58% of the vote to Hsieh's 42% plus his large majority in legislature elections in January as leader of the Nationalist party and his independent stand on issues creates an opportunity for Taiwan to start a new era of peaceful relations with Mainland China as an independent country. It means direct flights from Taiwan and direct postal and shipping routes are now likely. The vote reflects Taiwan's reliance on China for its growth and as growth slows and markets in US and Europe see a slowdown Taiwan's main hope for reviving is economy is in closer ties with the mainland. Taiwan's growth rate in 2007 at 5.7% is much lower than earlier decades of fast growth an much of the manufacturing industry in Taiwan has moved to the mainland and with it a lot of Taiwanese managers are working in China. At the same thime there are restrictions on direct contacts and investments in the mainland. What Ma's policies will do is open up a new era of economic relations with China to increase growth in Taiwan. Both Taiwan and Japan have depended on China for a large part of their economic growth in the last ten years....

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Latest data from the U.S. Treasury shows it has collected $63 billion in tariffs over the preceding 12 months. Even though there is no agreement on trade with China, president Trump says the U.S. is benefitting from higher tariffs by tens of billions of dollars. In May he estimated tariff revenues could reach $100 billion.This report in the WSJ says this could happen if the the new tariffs of 10% on additional $300 Chinese goods imported to U.S. goes into effect on September 1. This is likely considering that China sees this in different terms than the U.S. such as its sovereignty, whereas the U.S. sees it simply in terms of fair trade. With new elections China may be simply putting things off till the election is decided as Mr. Trump has pointed out. The tally of what the U.S. Treasury gets annually if $100 billion is generated in tariffs goes something like this. Of this $30 billion was generated previously for the U.S. government, so the incremental amount is $70 billion. Of this about $16 billion goes to offset the effect of loss of farm exports to farmers, mainly soyabeans exports to China, through a rescue fund. This leaves additional $54 billion for the U.S. Treasury. Money that could conceivably be put back into infrastructure that the U.S. badly needs in mobile and fixed to improve internet speeds and move up from its low rankings compared to China and other countries. A WSJ report this week shows Germany in worse shape than the U.S., both countries having dismal status in mobile infrastructure- the U.S. at No. 37, and Australia No. 4, Canada No. 3, and even Croatia No. 9. This throws some light on why this trade dispute has become intractable, for China the right of a sovereign nation to move past middle income status even as its telecom technology with Huawei 5G is top class, and for the U.S. the right not to fall behind in advanced technologies such as Telecom. It is also why one hears so much about Huawei and why it has become a flashpoint of the conflict in trade and trade practices. It is thought Mr. Trump is conducting this trade dispute. Yet less known is the fact that prominent Republicans in Congress such as Senator Warner have stated on television talk shows that they are concerned Mr. Trump may give up too much in negotiations that lead to the U.S. not being able to compete in telecom advanced technologies that matter for competitiveness and for national security. What was treated by Bush and Obama administrations routinely without much attention to the consequences is now a top concern for Republicans and others in Congress and business. ...

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Martin Feldstein supports cutting "tax expenditures," -the special purpose deductions such as the deductions for mortgage interest, charitable deductions, state and local government taxes and other such exemptions- as Bowles-Simpson Deficit proposals have recommended. Bowles-Simpson would use this money to reduce tax rates and only $80 billion of this to reduce the deficit. Here Feldstein suggests capping the individual's benefits from such deductions at 2% of adjusted gross income. Research by Feenberg and Feldstein on the use of such a cap shows that this would reduce the federal deficit in 2011 by $262 billion or 1.7% of gross domestic product. The list of deductions used by Feenberg and Feldstein for these figures are: deductions for mortgage interest, state and local income and property taxes, charitable contributions, credits for dependent care, children and certain education costs, and the exclusion of employer payments for health insurance. Sunc a cap would not affect the 46% of taxpayers who use the standard deduction and would induce others to shift to the standard deduction. By doing so this will simplify the tax system and reduce economic inefficiency. Feldstein advises that Congress should include and individual cap on total benefits from tax expenditures in any program to tackle the deficit....

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Martin Feldstein looks at Bowles-Simpson Deficit Commission proposals and says the deficit reduction does not come soon enough. He points out that the Bowles-Simpson proposals still leave the national debt in 2020 at the level it is today- at 60% of GDP, and not reach the level of 40% of GDP that we had 2 years ago till 2035. The mere prospect of persistently high deficits, he says, jeopardizes the recovery by creating the expectation that tax and interest rates will eventually rise substantially. He says the Bowles-Simpson spending reductions by reforming the tax code that subsidizes mortgage payments, local government spending, health insurance and other items at an annual cost of $1 trillion, are the best approach. He differs with Bowles-Simpson in how this money would be used. Whereas Bowles-Simpson would use it to lower tax rates, leaving only $80 billion a year for deficit reduction, Feldstein would finance major deficit reductions. Feldstein recommends additional universal savings accounts to supplement Social Security. And he supports the Bowles-Simpson proposal for limiting the growth of government health-care spending to 1% more than the growth of GDP. He says the President needs to scale back the tax and spending proposals in the budget presented in the early part of 2010....

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The American Treasury Secretary who handled the 2008 financial crisis, Henry Paulson, gives the new US financial reform legislation an incomplete grade. His main concern is that the too-big-to fail risk in the US banking system continues, and without clear rules a lot depends on the regulators. He does not see higher capital requirements doing much to ease that problem, and sees another crisis in a few years as inevitable. Former SEC chief, Harvey Pitt, gives it an F for failure or an I for Incomplete. He sees it as a boon for lawyers, because it is not clearly written and leaves so many loopholes, to a degree that is simply astounding. He says it does nothing in the way of preventing another crisis. Does nothing for transparency, nothing for monitoring and action by regulators, all factors that led to the crisis of 2008. Nouriel Roubini gives it a C+, because it does little to fix the reasons why securitization failed and caused the crisis, and in this way will keep credit creation and expansion in a weak state. He sees this financial reform bill as a failed effort that is laying the ground for the next crisis, with little action in the "too-big-to-fail" area, a huge dilution of what former Fed Chairman paul Volcker had advocated in the Volcker rule, and no real impact on the risky trading of derivatives. Bill Gross of PIMCO gives his frank assessment in no uncertain terms. A D+ for this bill. It shows how lobbyists for the banks still control Congress he says. It would have been better to let Paul Volcker take charge completely, than to have the lobbyists dilute the critical reform proposals. Simon Johnson gives it the lowest passing grade at MIT, a B. The only large change he says, is the Kanjorski Amendment, which give federal regulators the authority to breakup the large banks. But he cautions that it may require another crisis for the regulators and Congress to "get it," and do what they should be doing....

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President Biden called for corporations to pay their fair share of taxes so that investments can be made in vital needs of the nation-US infrastructure, education and health, transport, public services. The NYT looks at companies where profits are shifted overseas to reduce taxes. In this case NYT looks into an investigation into shifting of profits to a Swiss subsidiary to avoid billions of dollars in income taxes. 

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Emirates and Quatar put in large order before Dubair Air Show, with Airbus getting a larger share of orders.

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Response to question whether this $100 a barrel oil is possible is yes, if something big happens in the oil flows from middle east or if there is a Katrina style hurricane. Reason being that oil demand has not slackened up either from Asia or from the U.S. automobiles. How would this impact the USA, Europe, Asia? The impact on Japan and Europe would be less because of the high efficiency in use energy use. This could slowdown the U.S. economy considerably as gasoline approaches $5 a barrel. India would be hurt with a drop in GDP growth from 8% to 6% according to an estimate by Crisil, Mumbai. It would affect Chinese growth also but the main impact would be indirect through a decline in the U.S. market for Chinese made products. Russia would gain and economic growth there could accelerate further from 6% to 9% according to estimate by MDM Bank, Moscow.

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The G7 countries including the US, France and Germany  and the European Union now support setting a oil price cap of $60 per barrel for Russian oil. This price cap of $60 goes into effect December 5, 2022, and require western companies that do most of the shipping and distributing for Russian oil worldwide to comply. The US favored oil price cap of $65 set at what Russia earned historically on oil exports. Eastern European countries such as Poland wanted to set the price cap on Russian oil much lower at $30 what it costs Russia to produce oil so that it would crimp Russia's ability to wage war in Eastern Europe that has brought millions of refugees to Poland in 2022.  There were also other prices of between $65 and $70 that were proposed by the European Commission. The US wanted to give Russia some incentive to continue its oil exports which it had threatened to stop if the oil price cap was set -and avoid a situation in which oil prices that hit $120 a barrel early in 2022 would not jump to hit $140 a barrel.  Poland has called for a review every 2 months of the oil price cap so that it is close to the market cap. In November 2022 Russian oil is being sold at about $48 per barrel discounted from Brent crude at $86. The $12 difference between $48 and $60 is the US saying to Russia that it is working with moderation just as it had supported Ukraine with air defenses but acted with restraint to limit that to avoid provocative attacks on Russian soil. What does a cap on Russian oil price mean and how is it possible? Western shipping companies ship the oil out of Russia and distribute it around the world. This advantage of the G7 countries is what it intends to now use to bring an early end to the war in Ukraine by cutting into Russian oil generated funding for the war. Shipping an insurance companies that insure shipping based mostly in the west are now required to comply and not carry supplies bearing a price higher than $60.  ...

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Spain's Opposition PP party wins 7 million votes compared to Socialists in government winning 6.3 million. PP party won an absolute majority in the Madrid area which means it does not depend on the far right Vox party. Spain's prime minister Pedro Sanchez and Socialist leader calls for a snap general election on July 23.

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The Spanish election produced a better than expected result for the Sanchez government. This report in CSIS shows that after a brief period Spain is returning to dominance of the Party Popular or the Socialist Party, the two governing parties in Spain, with smaller parties doing poorly. Both the PP and the Socialist Party are vying for support of a majority of 176 seats with the help of smaller parties. The VOX did not do as well as expected and a PP VOX party government looks less likely says this report. Even if a government with Partido Popular is formed it will continue most of Spain's foreign policy of supporting NATO and the EU. Mr. Sanchez formed a new government in 2020.

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The 2018 U.S. Budget deal that passed the U.S. Senate on February 8 meets nearly all of the priorities set by Democrats in Congress for increases in spending, says Representative John Yarmuth of Kentucky, the senior Democrat in the House Budget Committee. Part of the deal are increases in funding for domestic programs favored by Democrats. As a result Democrats are having difficulty taking a stand on the budget and forcing a shutdown of government on the basis of a single issue, that of children who were brought unlawfully into the country by their parents but offered protection under president Obama's Dreamers legislation called DACA.  Reflecting this ambivalent position Representative Pelosi of San Francisco, made a spirited defense of the Dreamer legislation with a 8 hour nonstop speech, plans to vote against the budget deal, yet says the compromise was fair and helped achieve Democrats priorities on other issues that affect the whole country. Democrats from the most liberal section of the party plan to vote their conscience on the issue, and Pelosi called merely for a commitment from Speaker Ryan to have a vote on legislation that would address the issue of the Dreamers, children of unlawful immigrants. Speaker Ryan offered no commitment on Dreamers except to say any immigration legislation would have to be something president a Trump supports. In the previous vote that led to a government shutdown a settlement was reached between the two parties in a matter of days when Majority Leader McConnell of the Republicans committed to a debate on immigration. On the Republican side the Freedom Caucus members oppose lifting spending caps to address priorities in spending supported by Democrats and to some extent by president Trump, because it worsens the deficit. The budget deal lifts spending caps for this fiscal year for domestic and military spending by about $300 billion. Senator Rand Paul of Kentucky emphasized this issue with his opposition to the budget deal and delayed the deal till the final vote in the Senate 71 in favor and 28 against.  ...

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Theresa May becomes the only candidate for leadership of the Conservative Party after Ms Leadsom withdraws from the race. No leadership vote will no take place with Conservative Party members and no early general election is planned. May is expected to become prime minister of Britain by July 12, replacing David Cameron. Her theme is for "one Britain" and to do away with the rising inequality and gap between London and the rest of the country, which was part of the anxiety of voters who voted 52% for Brexit on issues of immigration burden on social and health services, national sovereignty, and a sense of ordinary people being neglected by elites in both parties. May will invoke Article 50 to leave the European Union and begin a 2 year period of negotiations only after she has developed a clear negotiating strategy. Kenneth Clarke, a Conservative Party cabinet minister called May a "bloody difficult woman," but this did not affect May, who said Mr Juncker of the EU was the one who would find this out in negotiations.  What is significant for Britain is May's moderate position coupled with a clear goal for removing some of the causes of the inequity in British society, which is needed for Britain to remain united. She called on companies like Amazon, Google and others to pay their fair share of taxes, and made clear her intent to strengthen the mechanisms for controlling executive pay. Also part of this strategy will be a more effective immigration control policy, which she did not implement vigorously as Home Secretary in the Cameron government, partly because of constraints set by EU membership. May made clear her agenda going forward by saying: "There is a growing divide between a more prosperous older generation and a struggling younger generation. And there is a gaping chasm between wealthy London and the rest of the country."  Changes May is supporting are to make executive pay rules to become binding not just advisory, and for employees and consumers to gain seats on company boards.  ...

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Socialist Party in Spain increases its share of the vote to 29%, and emerges as the largest party to form a government with the socialist leaning Podemos party in 2019 elections. It does this by returning to its labour base and working class roots. It pitches a platform of worker's rights, higher taxes on wealthy, environmental roots, issues important to its social democratic roots. The WSJ cites a 57 year old employee of Spain's health service Antonio Benitez, living in Andalusia who says people have a hard time making ends meet, and its about time socialist parties speak of the main pillars of being socialist, without all the deviations to the centre. As free market thinking entered the mindset of leaders in the UK such as Tony Blair and Gerhard Scroder in Germany, Clinton in the U.S., the shift began towards economic efficiency in the tradeoff with equality and social justice. This was aggravated by the effects of international trade and technology in worsening income disparities and unsettling communities in traditional manufacturing. This trend is now being reversed as Socialist parties or Labour allied parties in the UK, Spain,and increasingly in the U.S., take a new position different from the past. A political scientist at the Free University of Amsterdam says its like these parties got hit on the head and now decided to go back to core values around equality, reducing disparities, social justice and the environment. Jeremy Corbyn of the Labour Party in Britain increased Labour's vote in the 2017 elections to 40% up from 30% in 2015. Italy's Socialists won 41% of the vote in 2014 European elections, moved to the centrist positions that made firing workers easier, pension overhauls raising retirement age, leading to losing half its support with 21% ahead of European elections in 2019. Pedro Sanchez of Spain raised the minimum wage by 22% before winning the 2019 elections compared to his predecessor Socialist premier Zapatero who is reported to have said "cutting taxes is left wing." Now workers rights and higher taxes on corporation are on the agenda.  ...