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Renewed warnings about the bubble in housing prices in China. Earlier warnings came from Krugman, Lardy, John Taylor. This one comes from Nomura economists Zhiwei Zhang and Wendy Chen. Could the government's action to curb rising housing prices not be adequate leading to a financial crisis as early as 2014, is the question posed by Zhang and Chen. They cite the rise of housing prices by 84% from 2001 to 2006, before the financial crisis of 2008 in the U.S., using the Case-Shiller housing price index. One problem- the government statistics may have underestimated the extent of the bubble. China's official index shows housing prices rising 113% in major cities from 2004 to 2012. Zhang and Chen say this is much smaller than the actual rise because it includes older, lower quality housing property. They cite an academic paper that adjusts for this and finds prices jumping by 250% in the period 2004 to 2009. Another problem is that China's housing prices growth slows after government action but then resumes the growth, leaving the risk exposure at the high level as before. Because the local governments are tied up in the housing bubble the problem would hit the banking system. About 14.1% of the outstanding bank loans are to local government financing vehicles, and 6.2% to property developers, according to Nomura economists. The declining potential growth rate in China means there is less room for bad loans to be absorbed by hyper growth levels than in the past. Errors in policy can magnify the risk including loosening monetary policy and exacerbating the bubble at the wrong time. In the absence of errors the risks still remain requiring the sale of public assets to bail out local governments and banks. The argument made by Krugman and other economists has been that China is not immune to the risks of a housing bubble going bad, in any way less than Sweden, the U.S., Spain and other countries, requiring bailouts of banks....

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The US gets the lowest score among the large industrialized nations- way behind Europe- in its record on greenhouse gas emissions and air pollution policies, agricultural policies, smog, and other environment criteria in a survey done jointly by researchers at Yale and Columbia Universities. On regional smog the US has a very poor score.

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Germany's Economy minister Zypries warned that Germany would take legal action by taking the case to the World Trade Organization if president Trump imposes tariffs above that allowed by WTO rules. She said this before a meeting at the White House between president Trump and Chancellor Merkel. The U.S. is Germany's largest export market with 107 billion in imports and the U.S. exports 58 billion euros of products to the U.S. Zypries accepted that the large trade surplus of Germany was "a problem," but that America "needs our machines and industrial plants" for the time being. Germany has insisted that it does not provide unfair advantages to its companies, and that German companies were simply more competitive. Trump has focussed largely on China for anti-competitive practices, though he mentioned BMW by name during the campaign. In the last 2 years the euro has depreciated significantly against the dollar giving German companies competitive advantage, largely as a result of the ECB- in opposition to German economic policy- trying to stimulate the economy of other southern eurozone countries such as Spain, Italy and France. ...

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The Washington Post points out the damage to civil society and the rule of law in Egypt in 2014-2015.

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Risks to stable long term growth of too much liquidity in the global financial system.

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The U.S. and the EU join together for stronger economic sanctions on Russia. The sanctions affecting large Russian banks ability to raise capital in financial markets are likely to affect the Russian economy. Russia was suspended for export credit and development finance. VTB Bank was one of three more Russian banks added to the list of banks with economic sanctions. The EU took similiar action against Russian state owned banks and imposed an arms embargo in July end 2014.

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China's Finance Ministry is having a difficult time controlling local governments using local government financing vehicles to invest in more infrastructure, airports roads and subways. One such city is Wuhan which plans six subway lines, three bridges over the Yangste river and a new airport. Much of the money comes from land sales. The Finance Ministry in a 2013 report pointed to the unreliability of land sales for future borrowing as the property market is slowing, and because it is highly unpopular to requisition land for land sales. This matters because the IMF says debt is growing faster in China than when Japan, South Korea and the U.S. fell into deep recessions at different times between the late 1980's and 2009. Local government debt accounts for one fourth of the increase in China's domestic debt since 2008. New rules by China's bond agency in Dec. 2014 prevents investors from using low grade debt to borrow cash. In the past local governments found a way around the central governments effort to curb growth of debt by restructuring the local government vehicles or some other way, as Wuhan has done. Wuhan Urban is the local government financing vehicle for Wuhan and its debt increased by 20% in 2013. Wuhan's mayor, Tang Liangzhi, is pushing construction to the point where he is known as Mr. Dig, Dig. One reason for China's slowing growth below 6-7% is the need to control the growth of debt. Local government debt in China reached 36% of GDP in 2013, double the figure in 2008, and will increase to 52% of GDP in 2019, according to the IMF. And the increase is not proportionally delivering the same results as before. JP Morgan estimates that over 4 units of borrowing are needed in 2015 for every unit of investment, compared to less than 2 units of borrowing for every unit of investment in 2007. PRC Macro Advisors of Hong Kong says half of the borrowing by financing vehicles goes to pay interest on existing debt in 2014. There are 8000 such local government financing vehicles in China today each competing to build infrastructure in its neighborhood, in the case of Wuhan to build a computing back office for financial companies and as transportation hub, even though its uncertain whether this will be realized or not. The problem is that alternative investments as an opportunity cost are being neglected, the hospital not being built as China's population ages with underinvestment in health care, and the private company with better returns that is unable to find financing. A classic example of crowding out of better return investments as a glut of housing and road/bridge/ airport infrastructure gets built. The central government is wary but faced with slowing growth pushes problems down the road, what experts call a Japan syndrome....

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Even government ministers line up at ATM's near the parliament building as Greece pulls out of bailout talks with EU finance ministers and calls for a referendum on bailout conditions for July 5, 2015. A decision by Greece on imposing capital controls is expected.

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Under new proposed changes carbon emissions permits would be sold to industry and heavier polluters would have to pay more. And to make it fair to European companies exporters in other countries like China would have to buy these carbon permits to be able to export to Europe. There is similiar discussion about this in the USA which expects caps on greenhouse gas emissions in a few years. These changes wouldn't go into effect till 2013 at the earliest and industry will be trying to create a level playing field by then. Countries like China and India because they are developing have been exempt from the greenhouse caps under the Kyoto Protocol which expire 2012. Under the Kyoto Protocol which Europe signed and the USA did not sign, European companies are giving carbon permits free to emit a certain amount of greenhouse gas every year, the heavier polluters have to buy the permits from the ones that pollute less creating an incentive for companies to reduce emisssions.

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The WSJ's Juan Montes, in an exceptional report from Mexico City, tells the story behind a landmark achievement for Mexico- Pacto Por Mexico of Dec. 2, 2012. The major political parties of the right, centre and left forge an agreement for the way forward for Mexico- beyond monopolistic pricing and industry structures in Mexico that hurt consumers, to increase foreign investment and new technlogies to modernize the national oil company Pemex operations, change labor laws, and create a climate for higher growth. The pact is broad ranging, shows a grasp of the problems facing modern Mexico, and ranges from anti-monopoly laws to getting junk food out of schools considering Mexico's high obesity and diabetes rate. It covers 95 goals. It is hard to overstate the significance of this achievement for modern Mexico. Montes describes the initiative of the PRD leader Zambrones in rebranding his PRD party as a moderate left wing party open to new ideas. This happened after the departure of Lopez Obrador from the PRD to form his own party in September. Zambrano and PRD moderates brought up the idea based on what happened in a landmark deal in Spain in 1977, that helped transform Spain after decades of stagnation under the Franco dictatorship. Around July after the presidential election, PRD president Zambrano, and the PRD's Jesus Ortega, held meetings in Mexico City with Jose Murat, a senior PRI politician, and PRI president elect Nieto's top advisor, economist Luis Videgaray. The decision was made by president Nieto and economist Luis Videgaray to pursue the discussions for joint agreement on vital issues facing Mexico. The PAN party was brought into the discussions. By mid-September nine people from the PRD, PRI and PAN started work on a draft agreement at Murat's home. The ground rules were set for discussions to be private, to have agreement on all points or assume nothing had been agreed, and not let current events disturb the talks. The nine participants set up the broad principles, and then a group of three, one from each party was given the task of coming up with the right language for the pact. By the end of November a 34 page draft was put together. A night of intense work to 2 a.m. followed the inauguaration of president Nieto on Dec. 1, with the Pact ready for announcement on Dec. 2, 2012. The Pact is a landmark achievement in its potential for changing Mexico and creating decades of economic progress similiar to that envisioned by the Spanish parties for Spain in 1977. ...

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India's crude oil imports were sharply higher in 2011 and 2012. India's imports of crude oil for the first 11 months of the 2012 fiscal year ending March 31, show a 40% increase over the same period in 2011 fiscal year. India's import bill was $128 billion for crude oil imports for the 11 months of fiscal year 2012. Indian subsidies to lower prices for fuel are $30 billion annually. The higher prices for crude create inflationary presssures in India and restrict economic growth.

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This WSJ editorial says despite his call for "hard-hitting sanctions" prime minister Cameron of Britain has not taken action to stop the flow of "dirty money" from Russia into the City of London. About $75 billion left Russia so far in 2014 in capital flight as the Russian elite shifts money overseas including to the City of London. France has a planned $1.6 billion sale of Mistral naval ships to Russia, and will need the British example to cancel this sale. Putin's strategy is to distance Europe from the U.S. In the EU countries opposing tougher sanctions are Germany, Netherlands, Italy and Greece. Netherlands suffered the most with 193 Dutch citizens killed in the shooting down of Malaysian Airlines Flight 17 over eastern Ukraine.

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Prime minister Matteo Renzi focussed on some critical aspects of how other Europeans see the negotiations in the Greece bailout in June 2015. Considering that the EU had relaxed conditions for the surplus, a critical condition for reducing austerity programs in Greece and focussing on reforms, and considering the high unemployment not insisted on further cuts to the public sector employees, the conditions put forward focussing on reforms such as collection of taxes are seen as essental by other eurozone countries, including Spain, Portugal, Ireland and Italy. Renzi told II Sole 24 Ore- "The point is that Greece may get different conditions, but it has to abide by the rules. It's not the case that we have taken early retiremnt pensions away from the people of Italy just to allow the Greeks to have them! We have brought in labor reform, but it is not the case that, with our money, a number of Greek shipowners can continue not to pay taxes.. I could go on." If he went on he would cite the tax collection laws and methods in Italy which were changed under prime minister Monti to tackle tax evasion in Italy, with no effort to collect the $11 billion in estimated taxes that are not collected in Greece. Italy banned cash payment above 1000 euros and started a cross referencing initiative to tackle tax evasion under premier Monti. Greece took up tax evasion legislation in 2010 in parliament but opposition from many groups led to no action. In 2012 Labor minister Elsa Fornero broke down in tears as she described raising the retirement age for women to 66 in the private sector from 60, saying this was to prevent "collective impoverishment." Italy lacks childcare and older women help with childcare for grandchildren. Renzi was probably thinking of these changes in Italy. He went on to say- " If there is a mass get-out clause over the rules, what will happen in Spain in October? And in France in a year and half? It is one thing to ask for flexibility amid abidance by the rules. It is another thing to think that one is the craftiest of them all, in other words to be the that does not abide by the rules. We want them to save Greece. But the people of Greece also have to want that." On tax evasion and other issues for long term financial health Greece is seen as not following basic financial rules for sustaining the euro....

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Major decline in oil prices in Oct. 2014 as prices drop to $81 per barrel and are forecast to reach $70. U.S. oil production increased by about 56% or 3.1 million barrels a day since 2004. U.S. demand for gas and fuel declined 8% compared to 2004. Initially instability and wars in the Middle East sustained high oil prices in 2012-2013. Yet with growing output from shale and other sources in N. America and slowing economies of Europe and China, the situation reached a point in 2014 where supply exceeds demand. This shift more than offsets any instability in trouble spots. The situation affects the U.S. consumer favorably with an estimate of $1 billion in savings for American consumers with every one cent drop in price at the gas pump, by one estimate from Deutsche Bank analysts. Typical American families gained an extra $50 a month from the decline June to October 2014, according to analysts at Gasbuddy.com. The declines are a boost for the slowing economies of Europe, Japan, China, S, Korea and India. China's imports for 2015 are estimated at 61% of oil consumption, using official estimates. In the current slowdown the lower prices offer relief. India which imports 75% of its energy benefits signficantly, as this helps lower inflation and reduces cost of fuel subsidies for state run companies. Russia is adversely affected by the declines as it depends on oil and gas exports for 50% of the nation's budget. Estimates by AFK Sistema economists show the Russian economy contracting in 2015 with oil at near $90 per barrel (Brent crude is at about $85, and WTI at $81 in early Oct. 2014). Russia's former Finance Minister Alexei Kudrin reflects opinion among Russian executives and politicians, when he told state television that Saudi Arabia may be pushing prices lower to target Russia's oil resource based economy and Mr. Putin, in an effort to broaden the effect of sanctions. (The Saudis have strongly protested the Putin intervention in Syria.) Venezuela has used $120 per barrel and Angola $98 for its budget, leading to a strong hit for the economy. ...

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Jim Dwyer discusses proposed legislation in the New York City Council in November 2011, to set a "living wage" of $10 per hour, plus benefits, for workers at new developments receiving more than $1 million in public money. Under this legislation employers who do not include benefits would pay an hourly wage of $11.50. Discussion in the City Council has led to questioning this legislation on the grounds that the developments would not be built under the new rules. Dwyer points to San Francisco, which has set the minimum wage at $10.24 for January 2012, plus mandatory contributions to health insurance funds. The number of low wage workers in New York City with some college education has increased by 70%, according to the Fiscal Policy Institute. Wages at the bottom were $10.85 an hour, adjusted for inflation in 1990, in 2010 the wages were $10. What this does is further increase the income disparities and inequality in the U.S. Because of the demographic changes in America with Hispanic children representing a large proportion of young children, and the high rate of dropouts from highschool in the Mexican American community in New York, this means more children in New York City growing up below the poverty line....

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China's National Bureau of Statistics made an announcement in Beiijing that 51.27% of the Chinese people now live in urban areas. In 1949 the figure was 10.6%, in 1979 it was 19%. In the space of three decades China has urbanized rapidly. This has brought with it economic growth, infrastructure development and increased employment in the manufacturing sector as new workers moved from rural areas to the cities. With it also come major problems for the country and the leaders of the Communist party led government. Of the 691 million urban residents, 253 million are migrant workers- 37% of urban residents and 19% of the population are in this grey zone described as the "hukou" or household registration system. Under "hukou" these migrants from rural areas cannot access public services in the cities, and have rights to access them in their own villages where they are registered. Integrating these migrant workers who are different than their more affluent and better educated neigbors in the cities so that they become truly a part of the urban areas will remain a huge challenge for China. One of the ways China is addressing this is with the plan to build 36 million units of affordable housing for these migrant workers by 2016. Ever so gradually Chinese officials are relaxing the restrictions on migrant workers- such as Shanghai Mayor Han Zheng's announcement for allowing all migrant workers to rent subsidized housing in the outer parts of Shanghai and committing to "increase the migrant population's involvement in the community affairs, cultural life and show genuine care for them." Food security is another issue as more development on prime agricultural land means less land available for agriculture. Appropriation of agricultural land for industrial use is bringing the country down to the limit of 120 million hectares of agricultural land needed for self sufficiency in food, according to the Land Ministry. At the same time China's leaders want to avoid what the World Bank calls "the middle income trap," where a country reaches a level of modernization and urbanization, and then stalls at that level- the level being around $3000 per capital GDP, which is China's GDP per capita today, according to the National Bureau of Statistics in China. Li Keqiang, who takes over from premier Wen Biao, sees the building of affordable housing for migrant workers as a critical way to continue the urbanization process, and shift the country from its export focus by increasing consumption and the development of industries that support this. A slowing economy dominated by state owned companies focussed on a decelerating export model and an aging but still growing population- NBS says China's overall population was up by 4.8% in 2011 over 2010 and has reached 1.35 billion- presents a tougher set of challenges to the new leadership in China than was faced by the current leadership....

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Difficulties facing China from an overheating economy, a property bubble in many cities,, and a 22.5% jump in March in the broadest measure of money supply being the latest signs of trouble. The government announcement will show the economy growth at 12% rate in the 1st quarter of 2010 vs. 8.7% in 2009. The problem is that China may have acted too aggressively when the central bank increased money supply and state-owned banks in China's centralized banking system were ordered to jack up the lending. The $586 billion stimulus sent even more money to construction and energy companies. Without effective steps and fast the Chinese economy could run into serious problems.