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The yuan is up 5.5% since the peg to the dollar ended in 2010, reaching 6.469 to the dollar. But this is not helping the U.S. trade deficit. The U.S. Bureau of Labor Statistics shows the price of imports from China are up 2.8% in May over the same month prior year. And the trade surplus for China in the first four months of 2011 is higher than the same period in 2010. What is happening? The improvements in productivity of Chinese manufacturers and the acceptance of lower margins is reducing the effects on trade balance of a small appreciation of the yuan, so that only a fraction of that appreciation is showing up in higher prices for Chinese goods. Also significant is that the yuan's small appreciation against the dollar is not enough to make up for the dollar's fall against other currencies. The yuan is down 8.3% against the euro and has actually declined 3.7% on a trade weighted basis in the last year.

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Alan Meltzer would like to see the Fed reverse its quantitative easing, and lower excess reserves gradually starting now. By this he hopes to see the Fed avoid the mistake of making a big shift from excessive ease to severe contraction further down the road. He also warns agains excessive deficit spending. He says a weak economy is not the time to cut spending or raise taxes, and he is not talking of draconian immediate steps. He would like to see a multiyear program to increase fiscal probity and reduce deficits size and frequency. As it stands now he takes both parties to task for lack of fiscal discipline and honest accounting. About $1 trillion in deficits each year on average for next 10 years is in the works, and is an underestimate because the savings of $200-$300 billion in medicare spending have still to be realized, and states do not have funds for increased Medicaid spending, and payments to doctors have still to go down by 25%. Chinese government purchases of half our debt will postpone the day of reckoning says Meltzer, but far better for us to strike at the problem now, before we blow a hole in the dollar and start a downturn. See the separate report on the shrinking UK economy....

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"China's Superbank," by Henry Sanderson and Michael Forsythe looks at the rise of China Development Bank to provide insights into the two decade real estate boom in China, and the trillions of dollars in loans made by state owned banks to finance China's state owned industries and infrastructure development. The authors say these loans based on land owned by the state, improved with roads and other infrastructure and then sold to industry, have helped finance China's urbanization and industrial development. But it has also created problems including eviction of farmers from the land by local government authorites increasing inequality, led to misallocation of capital on bad projects, and an unsustainable model of development focussed on state owned companies. A major side effect of this is not covered in the book. This is the impact of crowding out of credit for private industry in China, with privately owned business having to pay higher rates in the underground loan market or lacking financing. A major focus of the report "China: 2030" by the World Bank and China's official think tank Development Research Center is on reversing this development to come up with a sustainable development model. The report was supported by World Bank chief Zoellick and China's new prime minister Li Keqiang. "The Great Rebalancing," by Pettis, a finance professor at Beijing University, looks at the other side of the financing of China's boom- the low interest rates on savings for China's consumer. This reduces household incomes and reduces purchasing power as the interest rates are lower than the rate of inflation. Lower value of China's currency also reduces the purchasing power for China's consumers. Estimates show the low interest rates cost China's workers and consumers somewhere in the range of 3 to 8% of GDP annually in bank deposit income. This money is funnelled through the banking system to make more loans for infrastructure and growth at the state owned companies, concentrating exraordinary level of financing in one direction. As a result the consumption share of GDP in China has actually fallen in the two decades of hyper development. This is about 34% compared to 50-55% for other Asian economies....

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John Taylor on the dual mandate for inflation and unemployment and discretionary policies by the U.S. Federal Reserve that ended up creating booms and busts in the U.S. economy. He advocates replacing the dual mandate of "maximum employment" and "stable prices," which was inserted into the Federal Reserve Act in the 1970's, with a single mandate for "long-run price stability." Taylor points out that this will still give the Fed flexibility, as it is focussed on long run price stability. The Fed does not have to overreact to short run increases in inflation. And he points out that this actually will work well for unemployment as the booms caused by an overextended period of low interest rates such as that in 2003-2005, have led to booms followed by busts with high unemployment.

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Efforts to boost the share of national income that goes to rural households and workers in China. The share of income taken by state owned enteprises and taxes paid by the enterprises would have to change for reducing the gap in incomes and reducing inequality in China.

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Prof. Scott Kennedy of the Research center for Chinese Politics and Business, voices concerns of experts who think that the $585 billion stimulus and the doubling of lending this year, increase in exports by a third last month, all point to an economy that is expanding too quickly. Kennedy says that no one defies economic laws, that eventually endless growth can get get you in trouble. The concern is whether the overexpansion of credit and the size of the stimulus may have led to overreaction in stimulus spending. People's Daily newspaper of China said that China's leaders are moving much faster than leaders of developed nations. But the flip side of this is that in the rush to increase spending there may be a lot of wasteful spending resulting in many bad loans a few years from now.

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Von Mark Schieritz of Germany's Zeit Online describes the changes underway following the election campaigns in the U.S., and France, and the Brexit vote in Britain, all signalling the discontent of people left behind by the tech, capitalism, trade and globalization changes of the last two decades. The appeal of one time fringe politicians using racist slogans and divisive rhetoric to appeal to those left behind, appealing to people lacking intergenerational mobility, and without much hope for a better future, is a serious concern. People who are gullible enough, lack college education, or racially isolated so that they are not likely to look carefully at what is being offered in terms of programs and change of competing parties, and likely to overlook the hard and difficult road for corrective course of action, because of anger and pentup fears. Schieritz cites as part of this change the unanimously approved conclusion in its final declaration at the G-20 meeting in Chengdu, China- "The benefits of growth need to be shared more broadly within and among countries to promote inclusiveness." Yet this can be a sort of "too little, too late."  Bankers who are cited in an email going around Wall Street lack credibility with groups on Main Street, to people adversely affected by tech, trade and globalization changes that have been persistently ignored for over a decade, close to two decades. More convincing is the tone of Theresa May, the British prime minister's first statement outside 10 Downing Street- who spoke of the "burning injustices" and her determination to make this a top priority of her government. Still more convincing are the programs to invest $275 billion over 10 years in infrastructure put forward by the leading candidate in the U.S. presidential election of 2016, to provide easier access to public universities and colleges to those left behind, as a sure way to create new jobs and address intergenerational mobility. In fact every leading candidate had made the loss of upward mobility their central plank already in 2015, long before Trump and Sanders started their campaign. The real hope lies in western leaders Merkel, May, and Clinton, all keenly aware students of changes, all women by the way who have sensed the injustice and have the ability to come up with something new and promising for the future, after learning the lessons of the past. ...

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Easwar Prasad, Cornell University economist, and a former head of the IMF's China division, says the new report by the World Bank and the Development Reform Commission (DRC), is part of an effort by government officials in China to push the agenda for change forward during the transition to a new leadership. This includes Premier Wen. There is pushback from large state enterprises. The DRC and the World Bank had called for a change from the current situation to allow more private sector involvement in the economy, which means restricting the growth of the large state owned companies and letting the private sector operate in more parts of the economy. The alternative is to see growth slowing quickly and -some economists- say suddenly without warning. The role of Zhu Rongji, a former prime minister during the period Jiang Zemin was president, in pushing for changes appropriate to the period, is also cited. The last decade under prime minister Wen Biao is seen as one in which China relentlessly pursued its currrent export led model of development with large state run companies and state run banks dominating the economy. This has made change even harder to achieve because of the pushback to preserve the status quo....

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Foxconn announces salaries for workers would increase by 16-25% to about $400 a month before overtime. Foxconn plans to reduce overtime. Foxconn is a major supplier in China for Apple Computer.

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Changes to China's five year plan to include critical social goals, reduce income inequality, and provide a social safety net. The influence of local governments in distorting central government policy.

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A study by the National Employment Law Project shows most of the job creation in the economic recovery to 2014 in the U.S. is replacing the better paying jobs with lower paying jobs in fast food retail and similiar low paying industries.

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Kaushik Basu, economist at Cornell University, and Chief Economist at the World Bank, says the U.S. Federal Reserve should consider the current low labor participation rate and low inflation in its rate policy setting decisions in 2015. Basu points out that in the recent past unemployment has gone below the current 5.5% without increasing the risks of inflation. He cites the period from July 1997 to August 2001 when inflation was below 5%, and at some points below 4%, yet inflation in 2002 was close to 2%. The large number of discouraged workers in this economic cycle has placed the unemployment rate below what it really is, says Basu.

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The authors, Becker, Davis and Murphy, are from the University of Chicago. They point out that the uncertainty created by the Obama administration's programs including healthcare and social investments in education, energy conservation, and the desire to reduce carbon emissions, all tend to slow business expansion and investments to create jobs by putting additional costs on business. The expanding federal deficit and national debt also create additional uncertainty. Their point is that it was a mistake to start making major changes to transform the U.S. economy at this time, and that it would have been wiser to do these changes after the economy had recovered completely from the crisis. All efforts they say should have been concentrated on establishing conditions for a strong recovery. When combined with the lack of regulatory reforms to fix problems left behind from the crisis, and other failures, serious questions arise about how things will turn out in coming years. See Krugman- The Feeling of 1937, where Krugman takes this up from another angle, again with concerns about the future....

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Since 2004 consumer spending's share of the economy in China has fallen from 40% to 35%.

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Applebaum talks to two researchers at the University of Chicago and Princeton, Prof. Sufi and Prof. Mian, on the record of U.S. president Obama and Fed chairman Bernanke in helping homeowners facing foreclosure and underwater borrowers, comparing that record with their record in helping the banks. The issue is relevant as the policy and handling of homeowners had to be part of an overall effective plan for recovery in the U.S. economy, because ultimately without the U.S. consumer any recovery would be weak in the long run- a situation the U.S. faces in early 2014. The response to the issue of irresponsible homeowners borrowing beyond the limit without an equally robust response to irresponsible bank management that allowed wildly excessive leveraging of assets, and successful aggressive lobbying by banks in a shortsighted policy of going through with a wave of foreclosures; besides creating questions of fairness and equitable handling of the problem, also had major ramifications for the future of the U.S. and global economic growth. Here Christina Romer and other administration advisors say Bernanke was right in tackling the problem from the perspective of the banks needing to be recapitalized. Thoughtful advisors looking at the entire problem, Martin Feldstein and Sheila Bair strongly pushed for providing the same help to homeowners without getting caught up in the issue of who was responsible home buyers or the banks, and looking at the interests of the U.S. economy and the U.S. people. Proposals by Feldstein and Bair were equally robust in helping banks as they were in helping homeowners, only the banks understood their interests narrowly and had more access to policymakers in the Bush, as well as the Obama administration, Paulson as well as Geithner. This leaves us with the ultimate irony of the Obama administration pushing for the minimum wage, even to the point of electoral posture, when lasting damage had been inflicted on homeowners from the weaker portions of America's middle class by a policy that went against what two respected financial and economic experts from the Reagan period, Sheila and Bair had strongly advocated. See links and groups on Feldstein and Bair. Applebaum has followed most aspects of this problem closely and continues to provide exceptional reporting including the piece on the thinking of new Fed chairman, Janet Yellen. Private enterprise rules that require management at banks just as for other companies to take responsibility for failures, and be replaced with new management, was largely avoided leading to a fundamental failure in how a free market economy such as the U.S. and western European economies are supposed to function. Rules aggressively pushed by Geithner's mentor Treasury Secretary Rubin for a vigorous cleanup at banks in South Korea during a similiar situation in 1997, were not followed in any way here, also setting wrong precedents for the long run. ...

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Hon Hai has about 800,000 workers. About 400,000 are employed in the southern industrial town of Shenzhen. After a number of worker suicides (13 people have committed or attempted to commit suicide in 2010 so far), the company has announced that it will give 20% raise to its workers. Workers at one plant in Longhua are paid 900 yuan or $132, the legal minimum wage in Guangdong province, though many workers work overtime at 1.5 times the standard rate. The company is secretive about its activities and uses the trade name of Foxconn. It makes personal computers and other products for Apple, HP and other companies. The company uses a military style discipline and it is reported that there is excessive stress in working conditions.

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This report by Thomas Erdbrink of the NYT from Tehran, shows the Iranian economy almost at a standstill as sanctions are lifted in Jan. 2016- with little or no growth after years of western economic sanctions. Iranians in Tehran do no expect an immediate improvement in conditions after the lifting of sanctions. The expectation is that it will take years to undo the damage done by sanctions.

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Romney says in the first presidential debate he will not increase taxes on the middle class: "I will not reduce taxes paid by high income Americans. And I will not, under any circumstances, raise taxes on middle-income families. I will lower taxes on middle income families." How he would do this is through limiting or eliminating deductions and loopholes among several measures, with work done on this by his advisor Martin Feldstein, Reagan's economic advisor and a professor at Harvard University- Romney's Tax Plan can raise revenue, WSJ, 8/28/2012. Where the Democrats and Republicans differ is that economic growth generated by creating incentives for business to invest and hire also plays a part in generating the additional revenues as it did under Reagan's economic plan. Behavioural factors play a large part of this as much as the incentives and other steps, to create a climate of business confidence- search in Janvoo for the Group "Reagan memo of 1980 by Shultz, Friedman," for more on this....

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Hon Hai chairman Terry Gou told corporate employees that Hon Hai plans to increase the number of robotic arms in its manufacturing plants from 10,000 to one million by 2013. He says the move will "improve working conditions and provide a better career path to employees." The improvement of working conditions is a major concern after a number of suicides. The plans to automate dangerous and monotonous tasks is intended to migrate workers to other work. Hon Hai has about 1 million employees in China. It is moving plants to the less costly interor of China where wages are lower- to Chengdu, Wuhan and Zhengzhou from the coastal areas.