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Blinder cites the reasons why the stock market declines are showing a disconnect with the economy in the U.S. which benefits from low oil prices, and the small impact of a slowdown in China on the U.S. economy. Yet other reasons may account for nervousness of investors, as Grep Ip points out in the WSJ, the lack of support from the Fed with its gradual rate hike path, and lack of support from the Chinese government with its policy of reducing debt and no significant stimulus.

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Alan Mulally talks to Charlie Rose about cost competitiveness, negotiations with the UAW, creating jobs, and the repayment of $20 billion of the $23.5 billion borrowed in 2006. Mullaly points out that 70% of R&D is connected with design and manufacturing- all the technology that goes into designing and building and the associated R&D.

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A look at Israel at 70 by the Economist magazine shows a country that has combined early achievements of socialist governments such as free health care system and good education system with the addition of 1 million immigrants from the collapsing Soviet Union, to build a highly trained technically skilled workforce and international companies.  It says the Israeli Arabs are still poor and unable to integrate. With ultra Orthodox Jews they make up 30% of the population, and many of them who do not work. Infrastructure has suffered from lack of investment and public transport is in poor condition. About 4.5 million Palestinians in West Bank and Gaza remain a continuous source of tension with no settlement in sight. The shift of the capital to Jerusalem is recognized by the U.S. Trump administration, a win for Israel, but leaving the divisive politics of Mr. Netanyahu in place. So that with the growing economy, there are social problems and political division which need to be addressed as much as the economy. A problem left for another administration, another leader from possibly a revived Labor party and another day. ...

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Anat Admati, is a professor of finance and economics at Stanford University School of Business. He says banks should depend on generating 30% of their assets from equity, something the banking industry of today in the U.S. and Europe considers heretical. More of the bank's assets should come from equity and much less from borrowed funds. Outside of banking healthy corporations in the U.S. carry debt at about 70% of assets and there is no reason banks should not do the same. In 2013 says Admati, the situation is not much different from that after the 2008 global financial crisis- large banks carry liabilities and debt at over 90% of their assets. The $2.2 trillion in debt at JP Morgan Chase bank is about 91% of assets of $2.4 trillion. Basel III regulations allow banks to borrow upto 95% of assets, and proposed banking regulations in the U.S. put this at 95%, with the way this is measured still being debated. At such high levels of debt the margin of error is small, and systemic risk which is high in a globally interconnected banking system means the whole banking system can freeze from one large bank going into failure such as Lehman Brothers. This happened in 2008 and the margin of error is still small, which is why global banking is such a high wire act with the U.S. Federal Reserve, the ECB and other central banks issuing regular warnings and regulators faced with the task of keeping the banking system in check through vigilance and investigations of banks violating laws. How much difference has Dodd-Frank legislation in the U.S. made after 2008? Jason from Atlanta says in response to Admati's article, that the Glass-Steagall Act of 1933 was 37 pages and the banking system did not freeze up in the way it did in 2008 for the rest of the twentieth century until its repeal. The 879 page Dodd-Frank legislation of 2011 is overly voluminous and still leaves 243 rules to be written by regulators in consultation with the financial industry. Banks are larger now than they were in 2008 and have an outsized influence in shaping the rules, leaving the U.S. Federal Reserve's supervisory committee and Fed Governor Daniel Tarullo with the job of somehow keeping banks out of trouble. JP Morgan Chase, Admati reminds readers, has $2.4 trillion in assets as of June 30, 2013, and debts of $2.2 trillion, with $1.2 trillon in deposits and $ 1 trillion in other debt owed to money market funds, other banks, bondholders and the like. ...

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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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Michael McConnell, was Assistant General Counsel of the Office of Management and Budget from 1981-1983. He is now a professor of constitutional law at Stanford University. Here he tries to throw light on how the budgetary process that is required by law, and which makes the formal budget proposed by the president available for public scrutiny, was circumvented through a sequence of events starting in February 2011. The Budget Act of 1974 sets specific deadlines and a process for generating revenue, setting spending priorities, and setting the debt limit. The President first submits his administration's budget by the first Monday in February. The Congressional Budget Office has until Feb. 15 to score the budget using identical metrics for all proposals for a consistent scoring. The budget President Obama put forward in February did not take into account the growing deficit and was rejected by the Senate 97-0. The President proposed a new plan in April 2011, but the proposed budget was so vague that CBO Director Douglas Elmendorf said he could not score it. The subsequent efforts in June and July 2011 were carried out in closed door negotiations between senior Republican leaders and the Obama White House. This subverts the original intention of the law. The Budget Act says that both the House and Senate hold hearings on the proposal, with testimony from the administration, "national organizations" and the "general public." Transparency, openness and accountabilility are key aspects of a proper process that is democratic and prevents the parties from engaging in blame and competing claims. The closed door negotiating sessions and the lack of a concrete written budget proposal from the President has turned the current budget process into an effort by each side to see how it can best position itself for the 2012 presidential election. ...

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Three regional Fed bank presidents have expressed skepticism of the Fed plan to buy medium to long term Treasury bonds- they are Kocherlakota of Minneapolis Fed, Richard Fisher of the Dallas Fed, and Plosser of the Philadelphia Fed. There are 12 regional Fed banks, and five voting seats on the Federal Open Market Committee rotate for the 12 Fed bank presidents. Opposition to Bernanke will increase as these presidents take voting positions in the Fed Open Market Committee. The Wall Street Journal reports that there is deep skepticism about Bernanke's plan among some of his colleagues. Thomas Hoenig of the Kansas City Fed says that more expansive monetary policy was "a bargain with the devil." The Fed's plan is to take a measured approach with U.S. Treasury bond purchases with maturities between 2 and 10 years. A WSJ survey of private sector economists in October 2010 found that the Fed is expected to purchase about $250 billion of Treasury bonds each quarter, and continue till mid 2011, amounting to $750 billion in all. By pushing down Treasury yields the Fed hopes to have an impact on the federal funds rate of one-half to three-quarter percentage point impact for $500 billon of bond purchases, says Dudley, President of the New York Fed. Treasury yields on the 10 year note have fallen from 4% in April to 2.6% partly in anticipation of Fed's action. The previous Fed intervention in March 2009 was a program to buy $1.75 trillion of Treasury and mortgage bonds over 6-9 months. This time the approach will be careful and measured based on results, according to the Fed. Alan Blinder, former vice chairman of the Fed, says this is the tool less preferred and of unknown effectiveness, as fiscal tools would be the preferred choice. The deficit concerns, he says, have restricted the preferred option....

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Morgenson says that the lobbying by the financial inudstry to weaken reform efforts for derivatives trading and resisting other reforms will only lead to taxpayers paying for more rescues later on.

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Many of the companies from the dot com tech bubble of 1999-2000 which were given $1 billion valuations went out of business, including names like Webvan and eToys. The same buble behaviour is evident in 2012 as many companies such as Facebook, Pinterest, Evernote, have $1 billion valuations, similiar to 2000. This is asignal that valuations may have spun out of control. It takes a few deep pocketed investors to raise the valuation of startup internet companies to these untested companies.

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

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Vernon Smith asks the question why when $10 trillion in losses were experienced in equities in 1999-2002 the financial system did not collapse, and in 2008 losses of $3 trillion in mortgages held by homeowners resulted in a collapse of the financial system. In the 2002 period the losses, he says, were borne largely by institutional and individual investors who largely owned the assets outright. In the 2008 crisis homeowners purchased about 90 to 100% of the housing assets on margin, and declines in value of 50% or more in the low price tier were seen for homes bought at the peak of the bubble. These losses were transmitted to banks and lending institutions. The consumption binge added to the debt of households. The result is that lending went down sharply for durable goods consumption, and this is seen in the decline of auto sales of 41% from Feb. 2008 to Feb. 2009. The collateral damage then occurs in retail and labor markets. This is similiar to how Ben Bernanke viewed the Great Depression crisis in an important paper- the inability of the financial system to perform its economic role of lending to households for durable goods consumption and to companies for production and trade. This understanding is different from the Friedman view of a contraction of the money supply, and the view that excessive speculation caused it. Bernanke's experience studying the causes of the Great Depression uniquely qualified him to address the causes of the global financial crisis of 2008....

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Joe Nocera visits two plants built by Gray Construction in N. Carolina. One is a Siemens plant in Charlotte, N.C., and the other is a Caterpillar plant in Winston-Salem. Both towns have community colleges that stress manufacturing skills. Forsyth Tech created a program working with Caterpillar to train its graduates in machining skills needed at the plant. The Caterpillar plant is huge at 850,000 square feet, and makes axles for mining trucks. The Siemens plant will make 280 ton gas turbines. Siemen's manager Richard Voorberg, tells Nocera the labor cost difference is not that much of a factor in highly skilled work, with shipping costs, and other efficiencies being more significant. Gray's backlog of 22 projects suggests a similiar conclusion. The problem is that the number of skilled workers needed in an highly automated plant with complex robotics is small. Caterpillar's plant will need about 500 workers, and the Siemens plant will need about 800 workers. This makes only a small dent in the enormous job losses of the last decade. And in N. Carolina the jobs lost in the furniture industry as the industry moved to China. Dow Chemical CEO, Andrew Liveris, points to the jobs created in the supply chain for every manufacturing job. And Ford Motor Company CEO, Mullaly, points to the innovation required in state of the art manufacturing, that creates sustainable advantage. The process of creating enough manufacturing jobs will take a long time, including shifts to new technologies and new products....