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Asking China to pay for part of the eurozone bailout is not in the interests of Europe, the U.S., or the world, says this New York Times editorial. China has said it expects the eurozone countries to stop criticizing China's currency policies in return for any help. It is not in China's interest to maintain these policies that create serious distortions inside China by tilting policies away from domestic savers with low interest rates and domestic consumption with higher prices. It maintains an export dependent model that is becoming harder to sustain as western economies face a slowdown.

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After delaying taking a loan from the IMF, a multilateral lender known for setting austerity conditions for its loans, Pakistan finally accepts a IMF loan of $6 billion over 3 years. In August 2018 Pakistan turned to Saudi Arabia for $3 billion loan and deferring oil payments of a similar amount, UAE for $3 billion, and China adding another $2.2 billion. A sharp drop in the country's currency reserves left Pakistan little choice. Other problems were a overvalued exchange rate that hurt exporters under the previous government and fiscal spending on needed infrastructure that could not be matched with changes in tax collection. Pakistan has some of the poorest tax collection in Asia, depriving the government of the funds needed to finance infrastructure.  The IMF loan is a smaller loan so that Pakistan would feel less compelled to comply with the difficult conditions often imposed by the IMF that has made it unpopular in developing countries, particularly in Latin America. This is the 21st IMF loan to Pakistan. Only Argentina has had to turn to the IMF for 21 loans. For example the IMF conditions to Pakistan require increasing the electricity and gas prices. Under the IMF plan Pakistan must cut its budget deficit before debt service to 0.6% of GDP next fiscal year starting in July 2019 from the deficit of 1.7% expected this year.  To do this tax breaks of 350 billion rupees or $2.5 billion next year have to be removed. The central bank autonomy was also promised and with this 2 former Pakistani IMF officials now head the central bank. Because widening the tax collection base and better tax collection are promises made in the past to IMF which have not happened, this report in the Economist magazine says implementation in this IMF plan will also be lax, more so as the IMF loan is small and supplemented with funds from other countries. A cartoon in one magazine critical of the IMF shows the IMF officials from Pakistan negotiating for the Pakistan central bank with the IMF head Christine Lagarde. Increasing the Pakistan tax base is essential for Pakistan's development to invest in infrastructure similar to what is happening in India. Releasing funds for infrastructure, roads and railways, hospitals and education, requires a larger tax base in all South Asian countries. Without this internal capital and showing results of spending -with successful infrastructure implementation with least or no corruption or overspending- countries risk falling behind.  ...

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A sign of the times or a growth industry in a poor area which has lost jobs as manufacturing declined. American Axle just closed a factory and laid off 650 people but 108 collection agencies are seeing boom times and debt is being passed on to them to collect and more people are being hired.

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Efforts by the Fed and Congress to strengthen consumer protections in the credit card industry that until recently has not seen any efforts at protecting consumers. This comes at a time when the US consumer is in a highly indebted situation and will help consumers straighten out their finances.

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Credit card companies do not disclose how much of the profits are from penalty fees. These companes target borrowers who rarely default but often pay penalty fees. The new bill makes high margins from this practice and lending to subprime borrowers difficult.

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In the year ending March 31 Indians had $14 billion on their cards, 4 times the amount of 2004. According to ratings agency Crisil the amount of unsecured loans and credit card receivables more than 3 months overdue is aabout 7% to 9% of total loans outstanding this year and could go as high as 15%. One of the leading banks ICICI has lifted its provisions for bad loans by more than 43% to 9.24 billion rupees ($185 million). The number of credit cards in India has tripled to 30 million in the past 5 years. Regulations on lending were relaxed leading to car loans and cards being issued to people in rural areas and lower income groups without regular salaries.

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AmEX becomes a bank holding company to get help from the government TARP program. IT has high exposure from credit cards loans.

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Spain's economy in 2017 is back to its size before the collapse in 2010 with the eurozone debt crisis and failing housing market. The unemployment rate has dropped from 26% to 18%, still high but gradually coming down. The economy has improved competitiveness and the auto industry is improving exports providing 17% of total exports. The SEAT auto plant has undergone a major transformation. Here Goodman of the NYT describes how this economic recovery is taking place in the port city of Barcelona.

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Germany is trying not to choose sides in the trade and security disputes between China and the U.S. Yet it owes a lot to the U.S. from the days of the Marshall Plan and U.S. taking on the role of defending Germany after the Berlin Wall. China was then a partner with the Soviet Union in the Cold War.  Today China is Germany's top market for its car industry. Yet the U.S. export market is much larger than China at $119 billion with China's at $96 billion. In Germany 28% of jobs are linked to exports, and in manufacturing this goes up to 56%, according to Germany Ministry of Economic Affairs. Germany supplied much of the factory  equipment from its engineering companies and the infrastructure that powered up the China transformation. A transformation now underway in India.  There are signs of a shift as engineering companies in Germany grew faster in the U.S. than China, increasing by 6-10% a year. India remains a key growth market for Germany over the next 10-15 years as growth in China slows and India accelerates with its younger demographics and investment in infrastructure. Much of the infrastructure in China is built and it is approaching the saturation Japan reached in the 1990's with additional investments adding little in the way of productivity. Longer term Germany has more potential for growth in countries in South and South East Asia  that will need to make huge investments in infrastructure and technology for manufacturing to meet the aspirations of the people there. Other issues related to freedom going back to the Berlin Wall and the rebuilding of Germany after World War II will emerge. German companies are running out of patience says this report in the WSJ with the bureaucratic obstacles, forced technology transfers, subsidies by state model to extinguish competition, and protectionist approach to home markets, even as state funded companies in China put other companies in Europe, Asia and the U.S. at a disadvantage. Germany will need to transition to a shift in its global relations, a process that is only now taking place. Just as with austerity policies in which it has now made the shift from going with the northern European countries (Sweden, Denmark, Netherlands, Finland) to the Southern European (France, Italy, Spain) in favor of common solidarity even at the short term cost of common debt, Germany now is facing the shift for solidarity with the U.S. for its support of Germany from the period of the Berlin Wall in the 1950's, for the U.S. and European solidarity in the face of the post-coronavirus world. The U.S. showing its generosity and openness to Germany and war torn Europe even as it took on the added responsibilities for creating a new alliance with Europe.   ...

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Moody's Investors Service raised Indonesia's credit rating to investment grade in January 2012. Indonesia's credit rating was raise to Baa3 with stable outlook. Indonesia's 30 year bond yields declined to 5.375% in January 2012. Indonesia faces major infrastructure problems. The lower cost of borrowing is expected to help Indonesia meet its borrowing needs to invest in infrastructure improvements.

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Matthew Kaminski gives his assessment of Angela Merkel's years in office. He cites a former German chancellor Helmut Schmidt's words: "People who have a vision should go see a doctor." She is no Konrad Adenauer or even Helmut Kohl. A scientist by training she is dispassionate, intelligent, diligent and takes the time to understand the details of the financial situation from her advisors, then sorting out the situation in her own mind. She gets less credit for bold action than she deserves because of her down to earth manner.She gave banks no option as bondholders to share losses in late night meetings at EU headquarters, called the president of Italy and secured a change in government after Berlusconi lost the confidence of the EU. In the current impasses between the Bundesbank and the ECB's Draghi over sovereign bond purchases with Jens Weidmann, Germany's representative at the ECB, supporting Mario Draghi's position, she has navigated the fine line between the German public's reluctance to take on the debts of its neighbors in the eurozone and the need for lowering the borrowing costs of Italy and Spain to save the euro. After the visionaries from Adenauer to Monet, todays eurozone leaders are focussed more on the nuts and bolts of making this idea of Europe work, requiring the skills and ability to learn and grow that she has demonstrated....

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S&P downgrades Netherlands to double-A-plus and raises Spain's outlook from negative to stable while retaining Spain's triple-B-minus rating.

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This is huge- for Germany, for France, and for the European Union. After initial hesitation and a decade of not looking ahead, Germany under Angela Merkel is finally not just looking ahead to its vision for Germany but doing this as a part of the larger European community. And the European Central Bank after its initial lack of community spirit, is paving the way with its own actions for the Europe wide recovery with a significant increase in lending to EU countries.  Germany's finance ministry has agreed to spend 130 billion euros on more than 50 initiatives to promote growth in Germany. No longer is the government looking at the car industry as it did in the past. It is looking beyond to what Merkel calls the "profound upheaval" coming from climate change and digitisation. For Merkel after the changes caused by the pandemic something more had to be done- "We just could'nt introduce a traditional stimulus package. It had to be done with an eye to the future, so that is what we especially emphasized."  This also brings together France's Macron and Germany's Merkel in a combined effort to bring Europe up to face the future with confidence. It is amazing how the pandemic has changed minds in Europe. From the long drawn out period since 2008 when traditional policy ideas and austerity thinking prevailed, to the idea today that this is no way to face the future with confidence for Europe to be back on its own feet, for hope to return. Instead of partnering in austerity with the Dutch and the Swedes, the finance ministry is now looking to France, Italy and Spain, considering the common pain of the core European countries during the pandemic and looking to the future.  Merkel moved to circumvent the traditional Bundestag's refusal to permit debt sharing  across the euro area by producing 500 billion euros of grants for hard hit businesses across the European Union. As Macron says it was a necessary  step- " What is sure is that this 500 billion euros will not be repaid by the beneficiaries.... We are proposing to do real transfers (of money) ... that's a major step." Forecasts from Capital Economics and other forecasters show the European Union's major economies of France, Italy and Germany rebounding quickly in 2021 after the blow in 2020, in a V shaped recovery with growth of close to 6% in France, and higher in Italy because of the bigger hit taken there than Germany. The strong U.S. jobs report with addition of 2.5 million jobs for May shows that the rebound can be sharp upward swing if the policy, will and community spirit is summoned up by leaders and people, no matter what happened in the past decade. It is also based on having the right spirit that knows about investing where it really counts for the people - in infrastructure, health, public services, and avoiding the misallocation of resources and spending that happened before. ...

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Trudeau's agenda for Canada in 2020 includes addressing the widening social gaps in society. Plans include renewed focus on social policy, increasing child care spaces, and improving care for the elderly. Trudeau says the government can take on more debt to help the economy recover and create jobs. A second wave means more help is needed for the economy and people struggling on low incomes. The second wave is here in Canada as cases increased from 5000 a day to 8000 this week from the prior week.

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The Reuters/University of Michigan consumer sentiment survey fell to 62 in April from 69 in March. Shows a steep drop fast and its also a 26 year low. Says a lot about conumser sentiment. Those tax rebate check may not keep spending from falling as nine out of ten respondents say they will use the money to reduce debt or increase savings.

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Alan Blinder points out that the political partisanship that has emerged in 2010 has not served America well, as it has deprived the government of the fiscal policy tools, which would be more effective than the Fed's only mildly effective tool of buying $100 billion a month of medium and long term Treasury debt. The country he says is tied up in partisan knots that prevents the use of the fiscal policy tools, and leaves the Fed with the choice of doing something only nudging the rates on government and private securites a bit (by 30 basis points for Treasury debt and 15 basis points for private securities as an example, not enough for more than a mild impact on corporate spending). The fiscal policy tools are he says of a wide variety and pack a lot more power, and he cites three as examples: offering significant lasting tax breaks for job creation, large enough to produce results (larger and long term than the HIRE program), government hiring directly onto public payrolls and government paying local and state governments for hiring at the local levels, the government offering to compensate states for a cut in the sales tax for a year to stimulate consumer spending. Would'nt this raise the deficit though? Blinder points out that the deficit problem lies in the future. Right now there is so much slack in the economy, that public spending will not crowd out private spending. And with Treasury rates at an all time low, Treasury can finance the larger deficit in the short term. A depreciation of the dollar or inflation, he says, is not a worry, because now there is worry about deflation, and the USA needs a lower dollar to push exports up and rebalance its economy. This does not slight the deficit issue and the culture of poor budgeting among both parties, as Reagan Budget Director David Stockman pointed out in an op-ed piece, but accomodates the real dangers and opportunities of difficult policy choices. This is why he laments the advertising campaign and public relations campaign against the 2009 stimulus bill, and the expected paralysis of fiscal policy from the extremely partisan 2010 midterm elections, and public opinion consumed by fear of deficits. Leaving the Fed with the unenviable choice of using only mildly effective tools. Other experts and columnists mention the risks associated with the Fed's large scale purchase of securities, if this leads to another asset bubble and subsequent collapse, and another bailout needed for financial institutions. Peter Eavis in one column in the WSJ points to the lack of effectiveness of the first round of quantitative easing of $1.7 trillion. And Kelly Evans, in the WSJ, points to the risks of "bad" inflation, if another round of quantitative easing by the Fed leads to increases in the price of commodities such as oil and food (such inflation falling heaviest on lower income households).The US Financial Regulatory Reform bill has received low grades, and recent standards for reserve capital in worldwide banking reforms are stretched out over a long period, leaving fragility in the economic system, if something were to go wrong....

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Sony CEO, Howard Stringer, faced some bad luck in the last two years- surge in the Japanese yen, the tsunami and earthquake in Japan, floods in Thailand closing factories, hackers penetrating its online gaming network, and the European debt crisis. The result is fourth year of losses since he became CEO in 2005. His experience was as a journalist and television producer, and he helped turn around Sony's music and movie businesses. Nobuyuki Idei did something unusual when he chose Stringer to do the same for the electronics business at Sony- bringing a Welshman from Britain to run a major Japanese company and someone with no experience in the manufacturing side which is Sony's strength. Stringer made cuts that helped reduce costs, cutting about 26,000 jobs. He also picked younger managers for the executive team and was sensitive to cultural differences. Efforts to turnaround the television business did not work- with the television business running seven straight years of losses because of intense price competition. He also made efforts to change the culture at Sony so that different divisions and groups talked to each other. Kazuo Hirai, who ran the Playstation business, now assumes the CEO role with the benefit of the groundwork laid by Stringer. He faces a number of challenges including how to move away from the television business and how to come up with new products that excite buyers....