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The situation in Boise, Idaho. Home to many electronics and high tech companies like Micron Technology, Boise has weathered many downturns with unemployment rates well below the national average. This time things are not looking at all like previous downturns, as the unemployment rate in Boise climbed to 6% from 2.7%- it has already approached the national average of 6.7%, and is climbing. This suggests that high tech is also being affected seriously. Unemployment is expected to reach 8% in 2010, about the same as the national average forecast according to Moody's Economy.com. Goldman Sachs forecast is for the 2009 savings rate to be between 6% to 10% by 2009. Families like the Capps and Muirs that have young children or children in teenage years, are now serious savers, as profiled in this description. Down to getting their meat from a calf grown on a family farm in the Rocky mountain region where Boise is located, cutting their own wood in the mountains, buying 11 dozen eggs and freezing the insides of the eggs, buying on deals like $8 winter coats at Old Navy's store, bulk purchases of sugar and staples, growing and canning vegetables, handcrotcheting hats and scarfs for sale on Craigslist and local bazaars. All this from Mrs and Mr Muir including starting a Moneysavers Club, an email group of 30 people. The Muirs are a young family with their first child 5 years ago, who have stable employment, with Mr Muir working as a grape researcher for the state Dept of Agriculture, and his wife a dental assistant. But having taken 2 mortgages to buy their $144,000 home because they could not afford the 20% down payment. The wife's 401K of $3000 going for insulation and fence , and the husband's 401 K savings down to $13,000- reduced to half by the stock market. Suggesting poor decisions on housing debt with low savings for a couple in their thirties. The Capp couple in its forties has also low savings, having $40,000 in student loans, and credit card debt of $11,000 just paid off by using the $10,000 severance package for Mr Capp. The Capps are economizing on everything from skiing to using washable rags instead of paper towels. He worked as a field service engineer for Electroglass, a semiconductor equipment manufacturer based in San Jose which fired two thirds of its field service engineers, including Capp. They also used a $25,000 line of credit on their home to buy a used Toyota 4Runner. Considering their economizing skills, their responding to the downturn by paring down debt as quickly as possible, the information of Mrs Muir's skills at saving, the Capps continuing to use their 253,000 miles Toyota Corolla- these are families that were not crazy spenders, but just families that did not take saving seriously. The Capps made $65,000 from Mr Capps salary and $10,000 from Mrs Capps work at a mental health clinic (after getting a BS in psychology), yet their $2700 in savings suggests no effort was made to save for a rainy day. What this saving and economizing means is that restaurants are closing in large numbers in Boise. Retail stores, including electronics and clothing, are shuttering, All this is leading to higher unemployment, leading to saving measures like those used by the Capps and the Muirs. Meanwhile the numbers for savings accounts at Home Federal Bancorp in Boise, Idaho, a $725 million bank with 15 area branches, shows savings accounts up 26% in December from the previous year. And says the banks consumer banking head, the balances are increasing even as the unemployment rate is going up. Which suggests that Rodriguez and Goldman Sachs may be right (seee link) that the savings rate may reach 10%, and even higher, from what is happening in Boise. Views on currency valuation and the dollar as indicated in the analysis of the article about Rodriguez /Grantham/Scheiff, WSJ, January 2, 2009, may have to be separated from the analysis of what is happening in savings, as the weakening of the dollar relates also to the weakening of other economies and currencies. This steep upturn in saving is likely to affect Chinese exports severely and the Chinese economy. This also affect the German economy, as China imports less from Germany, especially its midsized manufacturers. See links. What is happening on saving, on the other hand, is very real, and happening before our very eyes....

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Thomas Sargent of New York University, the 2012 Nobel prize winner in economics, says the EU leaders can learn from the way the federal government in the U.S. handled the issue of state's debt when it came up in the 1790's and in 1840. In 1790 the federal government- under the leadership of Washington and Hamilton- saw the need to honor state's debt because of the contribution made by states in the war of independence and the U.S. assumed state's debt. In 1840 the U.S. refused to assume state's debt and states went into default. The result was beneficial because state's passed balanced budget rules and restrained reckless spending. Another benefit was that this preserved state rights to manage their finances and the federal structure setup under the constitution.

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David Blanchford of Dartmouth College and Adam Posen of the Peterson Institute of International Economics argue in a recent paper that the true indicator of unemployment in this economy -with a low participation rate and millions dropping out of the labor market unable to find work- is the wage growth. This is particularly true with the U.S. Labor Department report of 288,000 new jobs in 2014 and a 6.3% unemployment rate, yet wages flat for March and April 2014, and no improvement in the participation rate. Blanchford says one should look at the wage growth and consider the rest to be noise. The Yellen Fed is looking closely at the participation rate.

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The commodities boom allowed Brazil under president Lula to commit to heavy state spending, subisidies, protection of favored sectors with large tariffs, that led to inefficiency and high debt. The policies continued under president Rousseff. Corruption scandals in the latter part of the Lula administration led to more populist policies for the Workers Party to stay in power, says Porter. Compared to Mexico and Chile, Brazil and Argentina under presidents Lula and Kirchner moved in the direction to closing up their economies to trade and foreign investment that would make corporate sectors more competitive and less dependent on the state for subsidies and favors. Mexico's economy other than the automobile sector is struggling, as mismanagement also plays a part as with the handling of Pemex and huge capital injections needed. Mindfulness and thoughtfulness is needed in setting policy direction, aware of the risks free of illusions about rosy scenarios, knowing that ideology plays less of a part than exercizing good judgement....

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Raghuram Rajan, Professor of Finance at the Graduate School of Business, University of Chicago, was appointed chief economist at the IMF in 2003. He presented a paper, titled "Has Financial Development Made the World Riskier," at the annual Jackson Hole meeting of economists and central bankers for 2005. Rajan says he had planned to write about how financial developments during Greenspan's 18 year old tenure had made things safer, but the more he looked the more evidence came up that the risk reward relationships in a normal functioning financial market had been terribly distorted. Market participants were being rewarded for wins but were not being asked to take on commensurate risks and impacts on their bonuses and rewards. He also cautioned about the use of credit default swaps which acted as insurance against bond defaults, and said insurers were generating big returns on this but with the appearance of little risk- even though the pain could be immense in a default. Banks were carrying credit securties on their books that posed risks to the whole financial system if things went wrong with the credit securities. Reaction from the gathering was unfavorable. Lawrence Summers, a former Treasury Secretary said, "the basic, slightly lead eyed premise of the paper was misguided."...

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Spain's Bankia bank makes headway in the recovery by 2014. Bankia chairman Goirigolzarri says it was "not impossible" that the government would recover the 22.4 billion euros it put in Bankia. Bankia reported net profit of 512 million euros for 2013. Problems remain as 15% of its total loans are more than 90 days overdue yearend 2013, increasing from 13% in 2012. There are billions of dollars of bad loans in a "bad bank." Shares are up 65% since Sept 2013, up to 1.31 euros in Jan 2014. The government valued the bank shares at 1.35 euros at the time of the bailout in 2012.

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Some of the crude rhetoric at Donald Trump rallies, and use of coarse language, according to the NYT. Working class and older Americans show their anger at a system that appears to have left them behind with slogans, stickers, T-Shirts. The idea of the wall figures in much of this and shows that the wall has become not jut about Mexico but a metaphor that captures this anger, that reflects this anger. Another aspect of the 2016 campaign is that those most vulnerable and most in need of help have not sought the comfort of knowing about programs to improve middle class and working class wages, incomes, to build infrastructure, create jobs, stop companies from shifting jobs overseas, plans for improving accesss to health care and education, to ask for specifics and delivery. This is the supreme irony of the 2016 election campaign that not enough attention is going to what will be done for the middle and working class, and what specifics will be delivered, in what time frame- which is essential for restoring the condition of the American middle and working class to where it was in the 2 decades after the Second World War. ...

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Results of a CBS New York Times Poll of 1018 adults in the U.S., reported Feb 28, 2006. Results show 55% showed support for gasoline tax if it reduced dependence on foreign oil, 59% showed support if it also reduced global warming. There is additional support if the money is used to fight terrorism, allocated to specific projects such as electric cars, or help low income people with extra gasoline costs. The important distinction in the results is what respondents were asked. When told about their response to a gasoline tax 85% of respondents opposed it, but when told it would reduce dependence on foreign oil 55% support it. Some respondents want to see it earmarked so that its use would reduce dependence on foreign oil through fuel efficiency improvements. The gasoline tax has remained at 18.4 cents a gallon since 1993. Politicians see the 85% and stay away from the issue and at periods of higher oil prices there is more concern about the impact on consumers. Prof. Borenstein, director of an energy institute at the University of California, Berkeley, says his calculations show a 10% increase in gasoline cost would reduces consumption by 6-8%. As the tax is regressive by putting a higher burden on low income consumers, this should be offset by income tax relief that would make middle and lower income people better off , says Prof. Borenstein. Some of the revenues would be used to support projects at automakers and research universities to develop more fuel efficient technologies for automobiles. Shows support is there if the tax and where money is spent is shaped in the right way....

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China announced that it would make its exchange rate flexible, but also emphasized that it would do so gradually. What this means is that China will have a managed floating exchange rate. China followed a managed floating policy between mid 2005 and mid 2008, with a 21% upward valuation during that period for the yuan. During the 2008 crisis upto now the rate was pegged. The yuan was pegged at 6.83 yuan to the dollar. China is now rebalancing its economy so that it is not overly dependent on exports. The idea is to let domestic wages and domestic consumption pick up the slack in the markets of Europe and the USA. Europe is taking up austerity measures, and the mood in the US is shifting towards concern about growing budget and trade deficits. See the groups for "China wages" and "China workers."

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India's ruling Congres party suffered losses in the two major states of Uttar Pradesh and Punjab. In Uttar Pradesh, the socialist Samajwadi party gained an absolute majority of 224 seats in the 403 seat assembly. The Bahujan Samaj party of Kumari Mayawati lost its majority winning only 80 seats, the BJP won 47 seats and the Congress won only 28 seats. Rahul Gandhi of the Congress party campaigned heavily in the state and the results show that his campaign against Mayawati did not result in Congress gaining enough seats to form a coalition government with the Samajwadi party led by Mulayam Singh Yadav and his son Akhilesh Yadav. Yadav has held the position of chief minister three times before, and campaigned for greater rights for lower castes and for a quota in education and jobs for Muslims. His other campaign promises included increasing electricity production, and improving the business climate. In the Punjab state, the Shiromani Akali Dal party won 56 of 117 seats, with the Congress getting 46 seats. National elections will be held in 2014, and the results reflect a repudiation of the Congress party after corruption scandals, slower economic growth, and lack of clear policy direction....

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This WSJ editorial calls the ISI and Pakistan army's playing both sides of the game- acting as an ally of the U.S. and supporting the Taliban- unacceptable. The editorial points to the Taliban and its leader Mullah Omar running the operations out of Quetta, in Baluchistan. And the Taliban faction loyal to Jalaluddin Haqqani having sanctuaries in North Waziristan and the tribal regions of Pakistan. Al Quaeda's No. 2 Ayman al-Zawahiri, it says, could very well be in Pakistan in some compound in the manner of bin Laden.

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Galston of the Brookings Institution says globalization has hurt workers in manufacturing with job losses and declining incomes. It has produced outcomes that have favored some industries such as tech, and not others such as automobiles which in the past helped create the broad middle class by offering good paying jobs to people with less than a college education. Immigration has created an issue that political leaders outside of the main parties have appealed to in France, the U.S. and Britain. The result is a polarization in the voters that has rarely been seen to this extent before. The middle class in the period from the 1950's to the 1980's is not the middle class that we see today in Europe and the U.S. The 2008 financial crisis added to the problems with the slow and uncertain recovery for some groups such as white men, the less educated, students, and people on minimum wage. 

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Ann Lee a former investment banker and now adjunct Professor at New York University, gives us facts that show the smaller banks that lend to small and medium sized businesses in the country are being closed by the FDIC. According to ADP small business that employs between 1 to 49 people, accounts for 48 million jobs, those between 50 and 499 employees account for 42 million jobs, and large business for only 17 million jobs. Without access to capital these small and medium sized businesses will continue to layoff employees, creating a vicious cycle of falling credit and demand. According to Automatic Data Processing's August employment report large business shed 60,000 jobs, medium sized business 116,000 jobs and small businesses shed 122,000 jobs. These smaller banks says Lee have done most of the lending to small and medium sized businesses. And overall lending has dropped from pre-crisis levels. Treasury's Capital Purchase Monthly Lending Report shows that banks that received government money actually reduced loan balance by $54 billion. According to reports issued by major credit rating agencies $700 billion of asset backed securities were underwitten in 2007. In 2009 only $10 billion was issued. This has a significant impact in every area. Banks have no incentive to lend with all the bad nonperforming loans on their books. They only hope that over time renegotiated loan terms would enable to recover these loans. But this might take a decade says Lee, if this is similiar to other crises like the one in Japan. She says what the banks do to make money is to borrow virtually unlimited amounts from the Fed at near zero rates and earn money from the spread when they lend to the Treasury. Does our current banking system make sense she asks. Banks are not investing in economic activity, in real products and services,but engaged in agovernment backed shell game that enriches bankers at the expense of everyone else. She says that the banking lobby may prevail in preventing the nationalization of the banking system, but this will not prevent questions about the status quo and its assumptions from arising if the recovery and regulatory reforms fail. ...

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Wall Street Journal reporters Walker in Berlin, Forelle in Brussels, and Meichtry in Rome, reconstruct the events during critical days after the indecision and failure to reach agreement during the July summit of eurozone countries. This took the form of intervews with leading players and over 25 policy makers. What emerges are accounts of how Germany's Angela Merkel, daughter of a Lutheran pastor, and protege of Eurozone founder, former German chancellor Helmut Kohl, handled the crisis. Merkel was widely criticized in the media for indecision. What emerges is an account of a leader who took decisive action at key moments in the crisis- leading to the formation of new governments in Greece and Italy taking action to improve finances, and negotiations with banks represented by the International Finance Corporation leading to acceptance by banks of a 50% loss on loans to Greece to reduce Greece's unsustainable debt burden. Merkel also worked with the European Central Bank's departing president Frenchman Claude Trichet and new president Italian Mario Draghi to resist French president Sarkozy's efforts to have the ECB assume responsibility for the crisis through large scale buying of Italian and Spanish bonds; which was opposed by German public opinion as a backdoor way of having German taxpayers assume responsibility for European debt. Shown are three critical moments when Merkel intervened. In October 2011, after Italian prime minister Berlusconi reneged on promises to make pension and other reforms to improve Italian finances because of political resistance. He survived a parliamentary no-confidence vote by one vote. Merkel took the lead on October 20, by directly calling Italian President Georgio Napolitano on the phone, to urge him to take action for forming a new government in Italy. The result was Napolitano talking with all political parties to form a new government, leading to the formation of a government by a non-political figure respected in Italy, former EU commissioner Mario Monti. A day earlier, on October 19, French President Sarkozy met ECB president, Trichet, at an event honoring him as departing ECB president in Frankfurt's Alte Oper concert hall. Trichet, Merkel and Sarkozy met in a side room. Sarkozy asked for decisive help from the ECB for large scale buying of Italian and Spanish bonds to lower yields, which had reached 7% on Italian bonds. Trichet responded that the ECB's charter did not allow it to finance governments, with the meeting ending in a shouting match between the two leaders. On October 21, EU and IMF inspectors warned that Greece's debt was reaching unsustainable proportions and austerity measures alone would not work, unless the bondholders, the European banks, took losses of 60% on their excessive lending to Greece. At this point France agreed to the German position arguing for this level of bondholder haircuts or losses, fearing the prospect of large future bailouts that would jeopardize France's triple AAA credit rating. The July 2011 summit accord had only provided for 10% in losses for bondholders. On October 27, at a meeting that went past midnight, Merkel and Sarkozy called IIF head Charles Dallara, who headed negotiating for the banks, to EU headquarters in Brussels. Merkel handed Dallara an agreement containing the 50% bondholder loss demand, and told Dallara- "This is the last offer." Merkel was saying banks would be left with nothing if they rejected it and Greece defaulted. Dallara called bankers and the IIF accepted Merkel's agreement. The final moment that October came on October 31, when Greece's prime minister Papandreou said he would call a referendum on the bailout provisions and austerity measures demanded by the IMF, the EU and the ECB. Bond markets reacted negatively to the announcement fearing a rejection and a Greek default. The Group of 20 leaders was meeting in Cannes, France on Nov. 2, 2011. Papandreou was asked to come to Cannes for a pre-summit meeting. Here Merkel told Papandreou- "the real question" for the referendum was, "Do you want to be in the euro, or not?" Days later Papandreou, lacking support in Greece from political parties and opposition inside his party, submitted his resignation. A non-political figure respected in Greece, former ECB vice president, Lucas Papademos, was appointed prime minister to head a Unity government. Polls after the appointment showed three fourths of Greeks said that this was "a positive step for Greece," with Papandreou's party getting only 11% support and the opposition led by Samaras about 20%. The criticism leveled at Merkel is that Germany should take responsibility for debt throughout the euro area through the issuance of eurozone bonds or the ECB buying large amount of bonds of Spain and Italy. Merkel faced strong opposition inside Germany and from the Bundesbank to this idea. The other criticism was based on austerity measures worsening the finances of Greece because of a lack of growth in the economy, which is true; yet Germany may see the situation in Greece as taking a long time to be resolved in any event because of excessive and faulty financial management. For Italy and Spain putting finances in order was a necessity, and austerity measures should lead to short term sacrifice but improve prospects for the long term by returning the economies to growth. Another criticism is the installation of governments that lack popular or electoral support. As the polls in Greece showed the Unity government there has far greater support and public opinion blames the politicians for the huge mess. In Italy, Berlusconi was widely seen as losing popular support when he resigned. And in Spain Mariano Rajoy, the newly elected prime minister, was elected with a huge majority in parliament following winning in local government elections. Merkel also held her own party, the Chrisitian Democrats together at the recent Leipzig convention. Mario Draghi, was elected with German support to head the European Central Bank. He has long argued for better management of Italian finances as head of Italy's central bank. Draghi was able to support Merkel with carefully planned and managed actions. First to reduce interest rates to support economic growth in a slowing eurozone. Following this with the ECB's Long Term Financing Operation in late December 2011, to provide unlimited loans to European banks at 1% interest for three years in exchange for a broadened list of collateral deposited at the ECB. In a final twist in this drama, Charles Dallara, who was a key negotiator for the U.S. Treasury in setting up the Brady Bonds- that converted bad Latin American government debt owed to U.S. banks in the 1980's into long term debt with large reductions in principal owed and lower interest rates. This was in exchange for guaranteed repayment with 30 year U.S. zero coupon bonds. Dallara was now a negotiator for the banks to reduce the chance of the very same bondholder haircuts that he had negotiated in an earlier period to solve the Latin American debt crisis. Other players in the drama were Axel Weber, head of the Bundesbank, Germany's central bank, who resigned after strong and outspoken opposition to the ECB's large scale purchase of bonds of Greece, Italy and Spain. Jens Weidmann, his protege, who replaced him. And Jurgen Stark, German representative at the ECB, who also resigned in opposition to Germany assuming responsibility for eurozone debt. ...

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This Journal editorial says the Bankia bailout continues to be handled poorly by the Spanish government, with Bankia continuing to be a drain on the government funds.

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Ms Aydintasbas of the Turkish daily Milliyet on the lack of support from the Obama administration for the government of prime minister Erdogan in Turkey to bring down the Assad regime in Syria. She points out that the movement for democracy in Syria as part of the democracy movement in the Middle East is only a normalization of history. She sees democracy finding its normal place in the hearts and minds of Muslims everywhere.

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Stephen Moore of the WSJ interviews Grover Norquist, head of the advocacy group Americans for Tax Reform. Republicans in Congress and other Republican leaders have signed on to the "no new taxes pledge" promoted by Norquist. There is increasing pressure on Norquist as the media, White House, and executives on Wall Street call for flexible positions from both sides on taxes and spending cuts. Norquist insists that not much has changed. He says that the increase in taxes on the rich is only symbolic and has to be followed up with increasing taxes on the middle class. He cites a Rasmussen poll that shows 75% of Americans believe this. Norquist is convinced that the Democrats with their spending plans are out to take the U.S. in the direction of European economies, the tax increase on the rich would be followed up with a energy tax or a value added tax to pay for unrestrained spending. His solution is for Republicans to pass a bill that extends the current tax rates past January after roughing it through the tax cliff date. Even the sequester option is better than increasing taxes says Norquist, letting the Defense Department make the cuts where appropriate. Norquist does not favor the option of reducing tax loopholes and deductions as a way to increase taxes as proposed by Simpson Bowles commission and Ryan-Romney in the election campaign. ...