LyrArc Article Gist
Cochrane says the best option today is for Europe to accept a sovereign default for Greece. He says the European Central Bank which stands behind the euro, should not be used for buying bonds of troubled countries with shaky "collateral." This would only lead to a situation where EU countries would have to recapitalize the ECB. He emphasizes the fact that Greece will not pay back this debt. And the only way out is to have a situation similiar to Argentina where it needs to start over, and it would at some point be able to borrow again. Austerity is deeply unpopular in Greece and with higher unemployment Greece's financial situation is rapidly deteriorating. Making austerity something that was tried to buy time but will not work. Cochrane also makes the point that the euro itself acts like the euro bonds that EU countries are reluctant to support, it means the ECB backs the currency and supports it- which makes it vital to keep the ECB whole and prevent the dilution of its financial strength. Axel Weber, former head of the Bundesbank, resigned to express his opposition to the ECB buying the bonds of troubled eurozone countries, which he said was outside the ECB's mandate to conduct monetary policy....

LyrArc Article Gist
Landon Thomas points out an important fact as Greece faces a decision whether to exit the euro and return to the drachma. Removing the interest payments to creditors (French, German and other banks) would result in closing the budget deficit in Greece. When these interest payments on a huge debt load are taken out, Greece would have a budget surplus of 1.5% of GDP compared with a budget deficit of 8% of GDP when interest payments are continued. The experience of Argentina suggests the immediate impact would be painful, but the devaluation in the currency of over 50% from what it is today would return Greece to growth. The alternative under the present plan is to leave Greece burdened with a decade of austerity cuts and a shrinking economy.

LyrArc Article Gist
Fitch Ratings Agency says that 65-75% of homeowners getting home loan modifications under the Obama administration's Home Affordable Loan Modification Program (HAMP) will default in 12 months. This is because the median ratio of total debt payments to pretax income is about 64% according to a Treasury Department estimate. Many of these homeowners have large credit card and other debt, and little is left for food, clothing and other expenses. By April 2010, 295,000 homeowners had taken loan modifications under HAMP, which provides interest rates of as low as 2%. And another 637,000 homeowners are in trial modifications, which require that homeowners show they can make the lower payments consistently and provide documets to show eligibility. The Obama administration has provided $50 billion for the HAMP program, with financial incentives to loan servicers and mortgage investors to modify loans. Critics say the program would have worked better if the government and HAMP dealt directly with homeowners- as homeowners complain about the long time, upto a year, it takes for loan servicers and mortgage companies to get the loan modified on a long-term basis....

LyrArc Article Gist
Nicholas Kristof says the strategy adopted during the Clinton administration of negotiations with the North and a partial lifting of sanctions worked better than the situation today. One criticism leveled at that agreement was that North Korea cheated and developed uranium weapon technology on the side. Yet says Kristof the situation is worse today. Under the "Agreed Framework" of the Clinton administration North Korea's Kim regime did not add to its nuclear weapons. Kristof says that policy of putting pressure on China has not worked. It would help if China did not transfer any technology to North Korea. Yet the basic policy of China remains in that it does not want renunification on the Korean peninsula that would put bring a U.S. ally on its southern border. The Bush administration and the Obama administration's policies did not lead to diplomatic progress and the world is a more dangerous place with North Korea's intercontinental ballistic missile capability in 2017. Kristof says it is time to give diplomacy a chance to work. See Bosworth, for how a veteran U.S. diplomat has built channels to North Korea through many years of diplomatic effort.   ...

LyrArc Article Gist
Feldstein says that the $700 billion plan to buy impaired assets will not prevent an overshooting downward in house prices, as more people have negative equity in their homes, rising to 40% of all mortgages at some point; and leading to a cycle of foreclosure and further price declines. This will only decrease the value of the mortgage securities that Treasury seeks to take off the hands of banks. And without direct government help in form of lowcost loans, say 2%, the cost of capital for the government, for 20% of the loan upto $80,000; more and more homeowners will have negative equity in their homes. This will lead to more foreclosures as housing loans are not full recourse, so that only the house is lost and the homeowner can move to an apartment and carry on from there. Thw size of this program would be $1 trillion but it gives the government income from the loans made and these would be full recourse loans so the taxpayer is protected. In Feldstein's view the current plan does not address declining house prices which is the root of the problem. ...

LyrArc Article Gist
Austin Goolsbee says the overvalued currencies of Italy, Greece, Spain and Portugal and the lack of growth under austerity plans proposed for these countries create impossible odds for resolution of the financial problems in these countries. The German position is that profligate spending and irresponsible accounting in Greece, and structural issues in Italy ranging from entitlement spending to tax evasion, need to be resolved.

LyrArc Article Gist
Joe Nocera compares the German insistence for tough austerity measures in Greece, Italy, Spain and Portugal, to the insistence ofthe Allies for large reparations from Germany after the First World War, which Germany was not able to pay and left it bankrupt by the late 1920's. He cites the failure of orthodox positions on financial and monetary policy to tackle complex issues such as the overvalued currencies of southern Europe, as productivity moved in opposite directions between Southern Europe and Germany. Austin Goolsbee, a former chairman of Council of Economic Advisors, makes the same point in an op-ed piece in the Journal, 11/29/2011. Nocera says this position is simiiar to the position on debt reduction for homeowners facing U.S. foreclosures with government intervention, where little action has been taken worsening the housing crisis and derailing the U.S. economy.

LyrArc Article Gist
Anxiety in financial markets about exposure of French banks to Greece pulled down French bank stocks on August 10, 2011. Societe Generale shares were down 15%. A British tabloid the Daily Mail published an article on Societe Generale saying that it was in a perilous condition, and on the "brink of disaster." The Daily Mail later retracted its report. The rumors spread quickly in a jittery market, reminiscent of the rumors that affected Morgan Stanley at the height of the U.S. financial crisis in 2008. Sanford Bernstein analysts say in a report that the selloff in French banking stocks was based more on anxiety and the rising price of insurance of thinly traded credit default swaps, and not based on rational concerns about earnings and raising capital. Societe Generale says it has no exposure to Greek bonds maturing after 2020 on its books- to deflect fears of additional bank bondholder haircuts beyond 2020- and has taken a 395 million euro provision against losses on Greek sovereign bonds maturing upto 2020. The jittery condition of markets was also affected by rumors that France was about to be downgraded. Moody's, Fitch, and S&P reaffirmed that French credit ratings of triple A and stable outlook would not change....

LyrArc Article Gist
Reagan adminstration Budget director, David Stockman, faults the Republicans for not controlling runaway spending, and for tax cuts when the deficit was already growing to unmanageable proportions. The Republican party he says, has not acted responsibly by opposing tax increases for the nation's richest taxpayers of three percentage points. He adds in the municipal bonds and the $7 trillion of new deficits, and says with this the total debt reaches $18 trillion by 2015, a Greece style 120% of gross domestic product, which calls for much needed austerity.

LyrArc Article Gist
The views being currently argued in meetings with the President about the war in Afghanistan and Pakistan. Vice President Biden's view: Completely change the goal and strategy. Scale down the military presence. Change the goal from protecting the people from the Taliban- and note that reports on the ground suggest that the people are indifferent and see the Americans and the Taliban as equally bad, with the Americans as foreigners far worse, see Doris Kearns others- to accelerated training of the Afghan forces to fight the Taliban. The focus of US interests would shift to Pakistan. Biden points to the disparity for every $1 spent in Pakistan $30 goes to Afghanistan, and the US real interests lie in Pakistan, not Afghanistan. The US would work with Pakistan to take out Al Quaeda in the border regions. And the proof is that this is working, as Al Quaeda figures have been taken out with Pakistan's help. Counterinsurgency would be replaced by counter terrorism so the US doesn't get bogged down in support of a failing government. The fraud in the recent elections and increasing isolation and loss of support for the Karzai government, supported by unofficial evidence from the ground, make this a serious option, especially as President Obama knows the Karzai government does not merit support and presents a losing proposition. The second view is that of Secretary of State Hillary Clinton- Ike Shelton of Missouri on the Armed Services Committee and Leslie Gelb (see links) share this view- who said in an interview on PBS, "Well Al Quaeda's no longer in Afghanistan. If Afghanistan were taken over by the Taliban, I can't tell you how fast Al Quaeda would be back in Afghanistan." The problem with this view is that the US has only a limited presence in a large mountainous country with the difficult terrain that Afghanistan has, and its not American ground troops that have done the damage in taking out Al Quaeda, its mostly high tech drones. WIth a wider engagement and expanded US ground troops in support of a failing government, that is alleged to have corrupt and narcoltics connections, the popular support would dwindle to the point that the extra troops would not be seen as protecting the population- because how do you protect a people who simply don't care or are suspicious of you? The solution requires some sort of settlement with the Taliban, which guarantees that it not serve as a haven for Al Quaeda. Progress with schools and modernization would have to be, at least in the short run, be given upon the basis of the U.S. coming to terms with what it can and cannot accomplish at an acceptable cost, and the idea of vital interests not lying in Afghanistan but Pakistan. The missing elements in this puzzle would help this strategy, bringing together key countries in South Asia, India and Pakistan, to assume greater joint responsibilities and abandon the entire postindependence. approach to relations. The third view is that presented by Bruce Reidel, who led the Obama administration's strategy review of Afghaistan and Pakistan earlier this year, and is based on pragmatic considerations and the unofficial information on the ground. Reidel puts it this way: "A counterinsurgency can only work if you have a credible and legitimate Afghan partner, and thats in doubt now." And he goes on to say "part of the reason you are seeing a hesitancy to jump deeper into the pool is that thay are looking to see if they can make lemonade out of the lemons we got from the Afghan election." For a complete change in policy and focus Obama would have to admit that he now has different information, and he is willing to admit to have misread the situation during the first 6 months and during the campaign. That is a test of leadership, being able to change after looking at the reality of the situation and digesting it fully. ...

LyrArc Article Gist
The growth in U.S. GDP was 1.7 % in 2011, yet unemployment dropped by 0.7% in the last 12 months to 8.3% by Feb. 2012. A pickup in hiring is seen in job figures. Christina Romer gives as an explanation to the rise in unemployment in 2009 to 10%, more than expected, and the drop since then, to the overreaction of companies to the financial crisis by laying off workers and freezing hiring- with hiring picking up as conditions return to normal levels. The unemployment rate as defined is also not an accurate measure of the jobs situation, as it reflects only workers who are looking for work, and many workers drop out of the jobs market when they are discouraged especially the long term unemployed. Taking into account people who have dropped out of the labor markets the unemployment rate was 11% in Nov. 2009, according to Luce in the Financial Times- in Ezra Klein, Washington Post 12/12/2011, Wonkbook: Real unemployment rate 11%. Lawrence Katz, Harvard Labor economist also cites this as one of three jobs crises in unemployment today that need to be addressed, the other two being: foreclosures and debt, and the low number of jobs added because of automated manufacturing- in Friedman, NYT, 12/10/11, The Next First 100 Days. Explanations for the low GDP growth as unemployment declines is a likely productivity slowdown. Prof. Robert Gordon of Northwestern University, sees a slowdown in productivity. Worker output for every hour worked, how productivity is measured, increased only 0.4% in 2011 and 0.9% in the last 7 quarters, and is trending downward in the longer term. A more likely explanation is that unemployment is still at higher levels but is understated in unemployment figures....

LyrArc Article Gist
Local customs, tradition and history of development play a part in each region. This is the message from Islamist politicians who want to bridge the differences with the USA in the northwest frontier province of Pakistan. They want to keep some of their Islamic ways of life and still work with the US. These Islamic organizations are working to reduce the violence in the region and promote democratic discourse and electoral representation. This is happening amid widespread mistrust of the U.S. of all Islamist politicians. There are negative perceptions about things Western which are not automatically accepted in these highly tradition bound areas of Pakistan, especially the Afghanistan border regions. Some kind of rapprocement could bring peace to the region and cool growth of militants. Is there a basic misunderstanding of the area and are their other more gradual ways of bringing these areas into the mainstream. Of modernizing these societies over time so they gradually accept women's rights, education and development as opposed to the sudden onset of change. One sign - these areas need hospitals, they need roads and there is no disagreement about this. Once they see the benefits of development and militancy drops then it s easier for them to understand the benefits of schools for girls, women's rights, and education and all other development. Its like the American South trying to baccept negro rights after years of blatant racism, took some time but now some of the southern states can't even be recognized from what they used to be in their perception of black people....

LyrArc Article Gist
Higgins cites the IMF and other experts on Greece's debt being unsustainable. He includes a long discussion with Charles Dallara who negotiated in the Brady Plan restructurings for Latin American debt, and for the European banks in 2010-2012 with the EU. Dallara says the issue has become politicized with national parliaments involved making it difficult to tackle the issue of debt reduction. Dallara points out that the Brady plan restructurings were possible because national parliaments were not involved.

LyrArc Article Gist
The $350 billon in proposed cuts to Medicare and Medicaid in the 2011 deficit reduction talks will do little to reduce the rapid rise in medical costs. Instead it shifts the costs to seniors, state governments and public hospitals. Gail Wilensky, former head of Medicare under the first President Bush and now a senior fellow at Project Hope, says this should not be confused with real reform to Medicare which reduces the rapid increase in costs. It does little in the way of fundamental changes that would reduce the growth in costs. About $53 billion comes from reductions to senior's ability to buy extra Medicare supplemental insurance or Medigap. Another $14-26 billion would have the government reduce payments to hospitals for unpaid debt. The few items to curtail fraud in the use of CT scans or purchase of power wheelchairs would provide savings of $2-3 billion over 10 years. $4 billion comes from lowering Medicaid payments to hospitals treating a high percentage of low income patients, hospitals such as Cook County Hospital in Chicago, San Francisco General Hospital, and Parkland Hospital in Dallas....

LyrArc Article Gist
Research shows that when a home's value falls below 75% of the amount owed on the mortgage, the homeowner thinks hard about walking away even if he has the money to keep paying, as it does not make economic sense to keep paying. By 3rd quarter 2009 4.5 million Americans reached this point and by June 2010 it is estimated by Corel Logic, a real estate firm, that 5.1 million will reach the 75% point- or 10% of all mortgages. Homeowners who made the mistake of buying as the market was cresting are seriously considering walking away and bank's reluctance to reduce the payments is for them the last straw. The Obama administration hasn't helped as this comment by assistant Treasury secretary for financial institutions, Michael Barr, shows. He discounts the idea that many people will walk away from their homes, saying that the overwhelming number will stay in their homes. Consultants at Oliver Wyman show from their research that at least 17% walked away from their homes even though they could make payments in 2008, or 588,000 people, and this was before the full impact of the global financial crisis. These numbers could be much higher in today's depressed market....

LyrArc Article Gist
Martin Fedstein has a new idea for solution to the mortgage and credit crisis. He has a Loan Substitution Program and this is how it works. The Government would loan mortgage holders 20% of their current mortgage loan, with a 15 year payback period, and an adjustable interest rate based on what the government pays on two-year Treasury debt (now just 1.6%).The loan proceeds would go to immediately reduce the borrower's primary mortgage, cutting interest and principal payments by 20%. Participation in the program would be voluntaryand participants could prepay the government loan at any time. The basic idea is to lower the Loan to Value Ratios and help prevent foreclosures and defaults so that house prices which may have another 10-15% to fall, do not fall steeply and overshoot as millions of foreclosures take place across the country in coming months. Legislation would require that the government must be repaid before all creditors except the mortgage lenders, and that the debt to the government would have to be paid, even if the homeowner defaults on a mortgage. The critical thing this would accomplish is that homeowners would pay less in total interest. In exchange for that reduction in that interest, they would decrease the amount of the debt they can escape by defaulting on their mortgage....

LyrArc Article Gist
Feldstein is back after his proposal that the government step in with low cost loans to families thatwould help homeowners reduce what they owed the bank by 20%, for those homeowners who are close to negative equity but not there yet. This is needed to prevent the next big wave of defaults on loans, from homeowners who see that walking away from their loans is a rational solution once they reach the point of negative equity. Feldstein hammers away at some critical points that point out that reducing rates risks more than it accomplishes. Food prices globally do not benefit from lower rates, as governments may have to raise interest rates to cool inflation in their economies. Rising food prices threatens the livelihoods of poor and working classes in the global economy, especially in developing countries of Asia and Africa. It also does little to stimulate the economy in the USA and actually helps increase inflation for commodities like oil and food products. So why is the Fed lowering rates even though the costs are more significant than the benefits. Lowering rates would be counterintuiive in this situation as Feldstein points out. Bernanke's response would be that its a temporary crisis response, lower interest rates helps financial firms restructure their debt and helps them restore health to their balance sheets in the fragile financial markets, where the financial architecture itself is being questioned. And the immediate crisis was in the financial markets, whereas some other solutions could be found for the damage this caused to the overall world economy in terms of inflation. Feldstein quotes estimates of inlation at 4% in the last 12 months and of 4.8% this year. The inflation rate in China is estimated much higher at about 8.5% and has become the focus of government efforts including relaxing the exchange rate, as the rise in prices especially of food affects the large working poor in China. Another aspect of lower interest rates is that lower rates surely would do little when there is such a large inventory of unsold homes. Significant also is the fact that lowering rates for fed funds by 3% from this time last year, has done little to lower mortgage interest rates which have come down only by 0.5%. So it does not give much relief to homeowners either. So is lowering rates a medicine that comes with a lot of side effects that you adminster only because the patient is in a critical condition, as the financial and credit markets appeared to Bernanke and Paulson that weekend only a few weeks ago? Probably so,which takes one back to Feldstein's main point. That main point is that the only way to get to solutions that strike at the core of this crisis is to help homeowners avoid default on their home mortgage loans, by reducing the loan amount by something like 20%, through government loans which can later be recouped to some extent. It cautions the Fed to use the medicine of lower rates sparingly, and urges the market participants and the public that insists that there be no "bailouts" to come to their senses, and accept that their will be tolerable losses for all if there are not to be intolerable losses for all....

LyrArc Article Gist
Arvind Panagriya, Prof. of Economics at Columbia University, points out the key initiatives of the Modi government in its first four years which will show results in future years for development of the country.  He mentions the Swachh Bharat Mission and cites results that show rural households with toilets are now 84% up from 38%.  By 2019 the whole country will be defecation zone free on the 100th anniversary of the birth of Mahatma Gandhi. The Dhan Jan Yojana DJY accounts opened for rural households are up to 316 million. Aadhar cards for identification are up from 650 million to 1.2 billion. The Aadhar and DJY work together to enable direct transfer of benefits to poor households, eliminating the leaks in benefits transfer and ghost accounts of the period since independence in 1947. Not mentioned by Panagriya is the Health Insurance scheme for lower income households that enable families to survive a sudden medical expense that could put them in dire straits.  These efforts work in a way to change India from the ground up from its villages and rural areas as envisioned by Mahatma Gandhi in the struggle for independence. The land acquisition law amendments were put on hold till farmers concerns could be better accomodated, an area of concern for industrial development cited in an editorial in the Hindu newspaper. Fiscal consolidation and inflation targeting have resulted in an average inflation rate of 4.3% for the 4 years of the Modi government. Inflation was over 9% in the last 2 years of the previous Congress UPA government with GDP growth dropping to 5.9% for the last two years. Average GDP growth for four years for the Modi government is 7.3%, even after the changes to implement GST taxation for one national tax eliminating state barriers in interstate commerce and demonetization to fight corruption and black money. Rate of GDP growth should be higher after the gains from the initiatives and the new GST integration of the country are felt, with increase in investment and FDI, after infrastructure improvements and land acquisition arrangements are made. Transportation infrastructure modernization initiative pushes ahead with the first bullet train in the pilot project for Ahmedabad- Mumbai set to start in 2022. This is a $17 billion project financed for $13 billion by the Japanese government at 0.1% loan for 50 years, moratorium on repayments for 20 years, using E5 Shinkansen series technology. Implementation of this project on a sound financial basis should lead to transformation of the Indian rail network, raising the level of technology implementation across the entire Indian rail system. Such an achievement would rival the first introduction of railways into India in the nineteenth century under the British. A new bankruptcy law is intended to free up capital for investment by putting behind the large number of non performing loans in the Indian banking system. Changes made by the central bank RBI are designed to speed up this process so that loss making enterprises are absorbed, consolidated or shut down, a legacy from the earlier period.     ...

LyrArc Article Gist
Austin, Texas and growth in "middle skill" jobs which offers ways to increase jobs growth in the U.S. in 2012-2015.