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Romney and Santorum in a tie, with Romney winning by just 8 votes in Iowa's Republican caucuses. Romney got 23.6%, Santorum 23.5%, Ron Paul 21%, Gingrich 13% and Perry 10%. Romney received almost the same number of votes he won in 2008.

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The Obama tax deal pushes tough decisions on spending into the future. It will put more money in people's pockets and as a result give a short term boost. Experts do not see long term benefits to the economy. It does not do what spending on much needed infrastructure and investment in other parts of the economy would do to give a long term lift to the economy.

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The Economist points to a second hit from bad debt in the post 2008 stimulus binge of spending in China. This is after an earlier hit, that was absorbed as a result of high growth rates and high savings. About $420 billion was injected into 5 state owned banks since 1998, according to one estimate, as a result of the first hit to China's banks from bad debt. In this second round of bad debt, covered in more detail by David Barboza in the New York Times, and merely alluded to here, many bad loans to infrastructure projects were rushed through by local governments. The Economist considers this one of the successes of the state directed banking system, that loans were quickly made and projects started in the post 2008 crisis period; and expresses the view that this hit will be absorbed just like the last hit. However the more detailed account by David Barboza and in Business Week, points to the working of a system of incentives gone astray in a capitalist system without the necessary controls or regulation. Local governments used investment companies to take on loans, which were then used to prepare properties to be auctioned off at a profit and speculative prices to state owned companies in different industrial sectors. This is part of rampant speculation in China in real estate markets. Can China with its high savings and growth absorb a second hit? This depends on the magnitude of the hit and the size of the bad debt, which depends on how long this speculative market continues to operate, and how bad debt is hidden in the books. The difference this time is that large state owned companies in different industrial sectors are engaged in this speculation. The other difference is that the high growth rates in China depend on continued large trade deficits with the USA and Western Europe, something which is not likely to continue for long, as consumers in Europe and the USA with high debt are becoming cautious spenders. This suggests that China, like the US with the mortgage crisis, faces the same effects of unregulated or uncontrolled speculative behaviours, that can endanger the banking system....

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To make custom loan modifications of the type that became necessary overnight on a large scale requires resources, investment in people and technology. On top of this a bank makes about $500 a year on a $200,000 mortgage loan, and if the loan is delinquent the bank may already have lost $2500, say experts, so there is little incentive to do much about custom loan modification. As a result, they used what a former J.P. Morgan executive called "Burger King kids." Or the banks outsourced the operation, some to law firms like David Stern, which in turn used outsourcing firms in Guam or the Philippines. The result is a largely chaotic process according to former mortgage officers of banks, and clerical staff that did not know what they were doing. Now atttorneys general in all 50 states have stated that they will investigate foreclosure practices of banks. It all started with the lone effort of Pine Tree Legal Assistance in Denmark, Maine, in succesfully challenging one of these improperly conducted foreclosures. See the NYT article on Pine Tree. In that case it was about a mother with two children who had her payment go up to $474 after loan modification, who is on food stamps after losing her job as an employment counselor....

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A plan appears to have been put in place by the U.S. and the European Union countries to strengthen the American position in negotiations with Iran underway in Istanbul. The impact on oil prices and on U.S. and E.U. growth as a consequence of higher oil prices, especially when the eurozone countries faced lowed growth, was one of the ways Iran hope to blunt the tightening of sanctions against Iran's nuclear program. It now appears from information released by the International Energy Agency that a plan was implemented by the Saudis in recent months to build up reserve supplies. At the same time a similiar effort was being implemented to increase production in Iraq and Libya so that it would add to reserves added by the Saudis. Daily output from OPEC countries increased by about 1.4 millon barrels in the Sept 2011- March 2012 period, as the confrontation with Iran took shape with increasing pressure using sanctions on Iranian oil, according to the IEA. Of this 1.4 million barrels a day increase, one third is from the Saudis and the rest from Iraq and Libya, according to IEA. In March 2012, OPEC oil production increased by 135,000 barrels a day to 31.4 million barrels, mostly from higher output in Iraq. The Saudis have filled up domestic oil inventories and placed an additional 10 million barrels of oil in storage close to markets in Europe and Japan. This suggests that this was part of a quietly implemented plan in cooperation with the U.S. and the EU countries to increase the effectiveness of sanctions and protect global oil supplies from disruptions; even as the U.S. pressured Japan, S. Korea, India and other countries to reduce purchases of Iranian oil. The economies of India, the EU and other countries were already beginning to feel the impact of higher oil prices in the 1st quarter of 2012....

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Jeff Sommer talks to Harvey Markovitz, considered the founder of portfolio theory, on share prices and the stock market. Markovitz says portfolio selection are the two most important words he wrote and the ones to remember. Building a diversified portfolio is the most important thing in investing. Markovitz says investors should forget about individual stocks and their oscillations, and buy low cost index stock and bond funds. Allocating these in a way that depends on the volatility and risk that the particular investor feels comfortable with. Rebalance the portfolio as needed periodically, and change allocations. Other than that do other hobbies, things that give you a greater sense of reward. Markovitz was deeply influenced by Hume's ideas of skepticism and the thought that one was never sure about the probability of an event occuring even if it had ocurred before.

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The weaker dollar has given a boost to U.S. exports. The dollar has dropped by 9.1% compared to the prior year against a broad basket of currencies. U.S. exports have provided 1.4 percentage points of the 3.0% annualized growth since the 3rd quarter of 2009. The U.S. dollar is now 5% away from its all time low in March 2008, when tracked using the dollar index. Before the 2008 crisis the dollar had over a six year period lost about 40% of its value. Low interest rates in the U.S. and concerns about the deficit have contributed to the dollar's decline in value. While the decline helps boost exports, it also increases the price of oil in dollar terms and increases inflation. A Gallup poll in April showed 42% of Americans had no confidence in the Fed's policies for the economy, and 43% had no faith in Treasury Secretary Geithner. The decline is taking place even as Japan is recovering from the earthquake, and Greece is likely to have to restructure its debt obligations with European banks taking losses....

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U.S. exports reached $2.34 trillion in 2014, increasing by $760 billion over the figure in 2009, according to the Commerce Department. Exports accounted for one third of the U.S. economic growth since 2009, say Pritzker and McNerney. Goods and services for exports supported 11.7 million U.S. jobs in 2014, and a Commerce Department 2010 paper shows these jobs pay 18% higher than jobs unrelated to exports. Commerce Department Secretary Pritzker, and McNerney, chairman of the President's Export Council, say free trade agreements and investment by private business is critical to supporting export promotion, but make no mention of the effect of the stronger dollar on future exports. In a period of a few months in 2015 the euro is approaching parity with the dollar and the yen is now 120 to the dollar, giving European and Japanese business a significant advantage, and raising questions about the strength of the U.S. recovery going forward.

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Instructions in a 2012 law say the money from fines paid by banks for LIBOR related offenses should go to communities throughout Britain. A program in North Yorkshire teaches military veterans how to use "therapeutic baking" as a way to ease stress through cooking and by kneading dough. The same social housing charity, Riverside ECHG, says its focus is on making sure people are not sleeping in bushes or cars. A program in Harrowgate uses these funds to resurface tennis courts at a treatment center for injured police. British prime minister Cameron promised during the recent election to use 227 million pounds from fines paid against Deutsche Bank in April 2015 for financing 50,000 apprenticeships. Critics say the money should have gone to people who were harmed by the banks actions, yet in the case of LIBOR related offenses it is not clear who was harmed and by how much. The idea for the 2012 law come from Chancellor George Osborne. Osborne said about sending money back into local communities- "It is fitting that the money paid in fines by people who demonstrated the poorest values in our society is used to support those who demonstrate the very best."...

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Economic aid from Qatar enables the Morsi government in Egypt to defer agreement for an IMF loan of $4.8 billion which requires Egypt to cut social programs, further aggravating a difficult economic situation for the people of Egypt. It also comes as Egypt's economy has suffered a decline from two years of protest and its foreign exchange reserves have hit new lows. Qatar gave Egypt $3 billion in low interest loans at 3.5%. Earlier Qatar deposited $4 billion at the Egyptian central bank, and gave $1 billion in grant aid.

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A new bipartisan plan on comprehensive immigration reform with support from Senators Graham, McCain, Schumer, sets forth principles for legislation. This includes Democratic requirements for a pathway to citizenship for 11 million illegal immigrants and Republican requirements for stronger enforcement. A separate bill sponsored by Senator Orrin Hatch would expand the H1-B program for skilled immigrants and increase the number of green cards. Senator McCain said on a television news show: "We can't go on forever with 11 million people living in this country in the shadows in an illegal status."

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As the U.S. population ages and grows at a slower pace the demand for automobiles is likely to peak in 2013-2014, and moderate in subsequent years. Automakers need to be vigilant about adding manufacturing capacity to avoid the problems faced in the last decade when sales and profits declined.

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Krugman points out that some depreciation in the value of the dollar is welcome because it would make US exports more competitive and reduce our trade deficit. He says China's policy of keeping the yuan pegged to the dollar actually devalues the Chinese currency and makes it possible for China to siphon off growth from other countries. So what should America do. By putting pressure on China to revalue the yuan upward would America be risking China responding by selling some f its $2.1 trillion in dollar assets. This would not be such abad thing if the Chinese sold some of their dollar assets says Krugman, as lowering the value of the dollar at this time is not such abad thing. Malpass and Alan Meltzer of Carnegie Mellon, point out the importance of maintaining the value of the dollar in a separate piece. There the idea is not to have sharp fall in the value of the dollar that could economic disruption because of loss of confidence in the currency as opposed to a gradual decline.

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After a severe financial crisis that could have snowballed into a Depression type situation and the credit rating agencies playing their critic-for-hire role in causing the crisis, there has been very little done to reform or correct the basic way in which credit ratings are made. Other than small patches to the system that failed the country badly by 2008, it has been left alone by Congress, the Obama administration, and regulatory agencies. The Attorney General of Ohio, Richard Cordray, says the "rating agencies total disregard for the life's work of ordinary Ohioans caused the collapse of our housing and credit markets and is at he heart of what's wrong with Wall Street today." Richard Blumenthal, Connecticut's Attorney General says he plans to join the suit against the credit rating agencies, Fitch, Standard and Poors and Moody's. Cordrays suit was filed Nov. 20, on behalf of Ohio's pension funds. It seeks billions of dollars in damages from these ratings agencies and accuses the agencies of negligence and fraud. About the failure of Congress to make even the basic change to the system of ratings, Joseph Grundfest, a professor of securities law at Stanford says ; "What you see in these bills are Botox shots, for a little while everyone is going to be frozen into a grin, and then the shots are going to wear off.'' A deputy dean at Yale Law School, Jonathan Macey, was a member of a bipartisan task force on credit ratings reform and met with lawmakers in Congress on this issue. He says its mortifying to see that this problem which is different from other complicated issues like water shortages around the world has been left unsolved, as it could be easily solved if there was even a basic degree of political will to do so. Congress looked at the option of creating an independent fee financed credit rating agency along the lines of the Public Company Accounting Oversight Board, established after the Enron, but did nothing with this idea. Rep. Kanjorski and Senator Reed have led the efforts to look at the credit ratings agencies in Congress and have basically decided this to leave the system very much the same as before the crisis, with the conflict of interest problem and incentives to improve profitability at the expense of the integrity of the ratings process still intact. Bills in Congress give more oversight powers to the S.E.C. and require companies to strengthen their compliance teams. In the period leading to the 2008 crisis the internal compliance teams did not get top management support at the credit rating agencies and there is skepticism about the effectiveness of compliance teams. S.E.C. regulatory efforts face push-back from the credit ratings agencies and the effectiveness of S.E.C. regulatory supervision is uncertain given the critical role that is given to credit ratings in bond and securties issuance....

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President Obama in his speech at Georgetown, April 13, 2009, describes the thinking behind the decisions made in the first 12 weeks of his administration- why the actions are not aggressive and overreaching as some critics say, and why they are not timid as other critics have said. This was not a typical downturn of the business cycle, but a perfect storm arising from irresponsibility and poor decisionmaking in Washington, Wall Street and Main Street- in effect several crises colliding for something like an explosion, if not dealt with at once, and with strong action. He says "the key to dealing with our deficit and debt is to get a handle on out-of-control health care costs, not to stand idly by as the economy goes into free fall." The recognition that the crisis itself brings with it new possibilities, the opportunity for coming to grips with and forging a good solution to health care, energy and education issues that were neglected while Wall Street directed investments to areas other than investment in building for the future. To the critics like Krugman, Rosenfeld and others who say that the takeover of insolvent banks should be done quickly before the situation worsens, he says it is not because of any ideological or political judgement he has made about government involvement in banks, but because it is more likely to undermine than create confidence at this point. He goes on step by step, through the process of decisionmaking, first to step in and boost spending vigorously, second to get lending flowing again to businesses and families, strengthening the non-bank credit market for consumer purchases and loans, the housing plan, the auto plan, and the work at the G-20. Then President Obama goes on to project his vision and the road to getting there. The five pillars he sees for the future are: redirecting Wall Street and banking to constructive investments for the future, investments in education, investments in renewable energy and technology to create new industries and new jobs, investments in health care to cut costs for businesses and families, and new savings in the federal budget to bring down the deficit. Obama says he will look for savings line by line in every corner of the budget, and has already identified two trillion dollars in deficit reductions over the next decade. And the goal is to reduce discretionary spending for domestic programs as share of the economy by more than 10% over the next decade. Procurement reform will greatly reduce no-bid contracts and save $40 billion. Secretary Gates is attacking th problem of hundreds of billions of dollars in waste and cost overruns that have bloated the defense budget, without adding to the nation's safety. And education programs that don't work will be removed, and waste, fraud and abuse in the Medicare program will be controlled. Finally, Mr Obama points to the nation's political system as one more reason we are in this perfect storm- "a fundamental weakness in our political system." He cites the putting off hard decisions for another day, scoring political points instead of rolling up up sleeves to solve real problems, an impatience that is only worsened by the 24 hour news cycle, and a short attention span that focusses on the immediate results and on poll numbers. And there is too much responding to the "tempest of the moment until the furor has died away and the media coverage has moved on, instead of confronting the major challenges that will shape our future in a sustained and focussed way." After these 12 weeks President Obama says, for the first time there are glimmers of hope, and way off in the distance can be seen a vision of America's future that is far different than its troubled past. And citing the parable in the Sermon on the Mount about that "house built on a rock", he sees America's house built on a rock, a house for which we use this moment to lay a new foundation, come together and begin the hard work of rebuilding, persisting and persevering in the face of disappointments and setbacks that surely lie ahead. Then he has no doubt "that this house will stand and the dreams of our founders will live on in our time." Its a remarkable speech in its directness, its simplicity in approaching the subject, and its borrowing from the Bible for that story of that house built on a rock, and its Lincolnesque reference to the house that will stand. And more than a speech, it describes a vision, and the set of actions and steps taken and to be taken to get there. ...